Numbers are symbols, much like words, with their own intrinsic simple meanings when they stand alone. When in relation to other numbers they become far more complex and meaningful. What is often not realized is the extent to which having insight into your business’s accounting statements can provide insight into the ins and outs of your business.
In business, numbers are the symbols by which you measure the various activities of an individual enterprise or combination of enterprises that make up the parent corporation. When you add and subtract all the numbers, you come up with the famous ‘bottom line’: the profit or loss that your business is making on your profit-and-loss statement. It’s pretty simple, but to establish whether you did better or worse, you need to look at the statistics in “relative” terms.
If your business shows a profit of $10 million for the year, is that good or not? It depends on the context of that $10 million. Did you make $8 million or $12 million a year ago? Did you make $10 million on sales of $40 million or $400 million? Your insight is now increased by connecting numbers to other numbers.
The meaning of numbers, like words, can only be understood in relation to each other. When I read sets of numbers, you should always translate them into meaningful percentage differences. Thus, if there is a $10 million drop in sales to $100 million, I know that sales have declined by 10 percent. If another division’s sales decrease by $10,000 to $50,000, that tells me the decline was 20 percent. Even though this division lost less money than it did before, I knew right away that it’s probably in deeper trouble than the division that lost $10 million in sales.
So I can identify the areas of business that need more attention. The statistics tell me that I’d better look at those numbers and figure out what’s going on there.
Numbers are not business; They are just pictures of business, but most people understand accounting as providing dry and boring data. What they don’t realize is that if you become literate in the language of accounting you can be set free by getting a deeper picture of the organization and the management information it uses to actively manage your business. Keeps secrets.
The difference between well-managed companies and badly run companies is how much they pay attention to numbers and how well they are able to interpret numbers and how effectively they can predict what is available. How to apply resources.
Make sure you know the terminology of accounting to the extent that you can read them like a book. Then you will get freedom irrespective of numbers.
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