Your Business Doesn't Need More Numbers. It Needs Better Questions.

Your Business Doesn't Need More Numbers.

As business owners, we are constantly told to "Know your numbers" and "Track your numbers".  And true, there is no shortage of numbers you could be tracking in your business.

Revenue. Profit. Expenses. Cash flow. Accounts receivable. Profit margin. Average sale. Revenue per client. And depending on the type of business you own, probably dozens more. Spend enough time on social media and it is easy to start believing that successful business owners know all of these numbers at all times, off the top of their heads.

So, you add another metric to your spreadsheet. Run another report. Start tracking another percentage because someone, who doesn't know your business, told you it's an important number to know.

But more numbers don't necessarily give you more clarity. Sometimes they just give you more numbers.

And if you're already doing your bookkeeping, looking at your reports, and asking questions but still don't feel like you understand what's happening in your business, you might not need more information.

You might just need to take the questions you're already asking a little further.

The First Question Is Usually Just the Beginning

When you look at your numbers, what do you ask?

Did I make money this month? Were my expenses too high? Are my sales up? Did I have a good month? Do I have enough money?

Those aren't bad questions. They're the kinds of questions business owners should ask. But they often give you an answer without giving you an understanding.

Let's say you look at your Profit & Loss and see that the business made a $4,000 profit last month. You wanted to know whether you made money, and now you have your answer. Yes, you did.

But what do you actually know about the business that you didn't know before?

Was $4,000 about what the business usually makes in a month? Was it considerably more or less than last month? Was it what you expected based on how busy you were? If profit changed, do you know what caused the change?

Perhaps $4,000 is exactly what you expected. Great. You looked at the number, put it into context, and confirmed that the business performed about the way you thought it did.

But perhaps you expected profit to be closer to $7,000 because you had an incredibly busy month. Now you have something worth looking into.

The question "Did I make money?" wasn't the wrong question. It just wasn't the last question you needed to ask.

That's an important distinction, because asking better questions doesn't mean you need to start asking complicated financial questions. Quite often, you simply need to take the question you already have one step further.

Move From Judging Your Numbers to Understanding Them

I see another problem with some of the questions we naturally ask about our businesses. We often ask the numbers to pass judgement on how well we are running our business.

Were my expenses too high? Was that a good month? Is my profit good? Am I spending too much? Am I succeeding?  Am I failing?

The difficulty with those questions is that words like good, bad, high, low, and too much don't mean very much without context.

Suppose your expenses were $8,000 last month. Were they too high? My answer right off the bat would be "It depends."  I would need more information before giving a more definitive answer.

If your expenses are normally around $8,000 and nothing significant changed, then $8,000 may be perfectly reasonable for your business. If they're normally closer to $5,000, I'd want to know what changed. Perhaps you paid an annual insurance premium, bought supplies for a large project, or had another expense you knew was coming. Once you see that, the increase makes sense.

But what if you don't know why expenses increased by $3,000?

That's when you've found a question worth answering.

Instead of asking, "Were my expenses too high?" try asking, "What changed in my expenses this month, and do I understand why?"

Notice that we're not trying to decide whether $8,000 is a good number or a bad number. We're trying to understand what happened.

That's one of the reasons I come back so often to the idea that numbers are information, not judgment. Your numbers aren't handing you a grade on how well you ran your business last month. They're giving you information about what happened in it.

Your job is to get curious about that information.

One Question Can Lead to Another

You also don't need to sit down with your financial reports knowing exactly which questions you're supposed to ask.

Sometimes the first question simply leads you to the next one.

You might notice that profit decreased and ask why. When you look a little closer, you discover that expenses increased. That leads you to ask which expenses changed. Once you identify them, the next question is why they changed.  And then, was that change appropriate.

Perhaps you get there and immediately understand what happened. You had an expense that only occurs once a year. Nothing is wrong and nothing needs to change. You followed the information until you understood it.

Other times, the answer raises another question.

Perhaps an expense you expected to be fairly consistent has been increasing a little every month. Now you want to understand what's behind the increase and whether you expect it to continue.

Or you notice that revenue increased but profit stayed about the same. That may lead you to look at what it costs the business to produce that additional revenue.

You aren't working from a checklist of questions you're supposed to ask every month. You're having a conversation with the information in front of you.

Start with what you notice. Ask why. Look at what the numbers tell you. Then decide whether you understand the answer or whether there's another question you need to ask.

That's very different from simply opening a report, looking at the bottom line, and closing it again.

What Are Your Numbers Making You Wonder About?

This doesn't need to turn into hours of financial analysis every month.

You don't have to question every number that changed or investigate every line of your Profit & Loss. And you certainly don't need to create another dashboard full of metrics because someone online told you that successful business owners track them.

Start with what gets your attention.  Be curious about your business.

Maybe something changed more than you expected. A number doesn't match what you thought was happening. Something surprises you. Or perhaps everything looks fine, but there's one number that makes you stop for a second and think, "Why is that?"

Pay attention to that reaction. Then ask another question. What changed? Do I know why? Is this what I expected? Is this something unusual, or has it been happening for several months? Does what I'm seeing make sense based on what I know happened in the business?

You don't have to find a problem. There may not even be a problem to find. That's not the purpose of looking at your numbers.

Sometimes the answer is simply, "Yes, this makes perfect sense." You've confirmed that what you thought was happening in the business is reflected in the numbers.

Other times, you'll find something you want to watch. And sometimes you'll discover something that needs your attention.

All three outcomes give you something more valuable than another number to track. They give you a better understanding of your business.

Before You Look for Another Number, Ask Another Question

There will always be another metric you could track, another spreadsheet you could create, another report you could run, or another percentage someone tells you every business owner needs to know. 

Some of them may be useful. But if you already have good bookkeeping and reliable financial reports, you may have more useful information available to you than you realize.

The question is what you're doing with it.

If you're looking at your reports and asking, "Did I make money?" don't stop when you find the answer.

Was it what you expected? What changed? Why did it change? Does the answer make sense? Is there anything here you want to understand better?

You don't need to know the perfect question before you start. You just need to be willing to keep asking until the numbers in front of you make sense.

Because trusting your numbers isn't about knowing every number in your business or having all the answers. It's about being curious about what your numbers are telling you. Instead of immediately deciding that a number is good or bad, ask why. Ask what changed. Ask whether it makes sense. And keep asking until you understand what is happening in your business.

Your numbers are information, not judgment. The better the questions you ask, the more useful that information becomes.