So the second thing that as an entrepreneur you need to know when you look at your numbers is your, “So what?”. And this is where I think a lot of really well intended accounting courses, such as Accounting 101 or any crash course in bookkeeping or finance, miss the mark a little bit. They’re super well intended but they go down this rabbit hole of assets, liabilities, debits, credits. And as a business owner, you’re busy. You’re trying to get customers, you’re trying to make your customers happy, you’re trying to run around and do all of these different things. And sometimes in accounting land, we get really in love with our own lingo and we get focused on all of this terminology. And the terminology actually doesn’t matter that much. What you need to train yourself to do is to look at all things numbers from the perspective of, “So what?”. So you want to actually have this as your mantra so whoever you’re working with or if you’re doing it on your own you want to repeat over and over again.
What is this so what? You’re going to be seeing all kinds of information coming in and you want to look at it through the lens of, so what does this mean? Is this good or is this bad? What should I do about it? How might we improve these numbers? You want to continuously iterate through that series of questions. There’s no good sense of looking at numbers saying, “When I started this business, I’m running around super busy trying to acquire clients or trying to acquire users or customers and my top line isn’t really there and my bottom line I still got expenses going out the door”. And you just look at it from the lens of, “Well okay, that’s that’s what you spend”. That’s not really going to help you. You want to look at it through the lens of saying, so what am I going to do differently? What am I going to try? What did the financial results that came in last month tell me? Is it telling you that you did amazing, you’re on the right track, and you should do more of the same thing. But most of the time even whenever our numbers are really good, most of us have a lot of ambition. And so if our numbers are really good we want to get to the next level and the next level. So even if your numbers are going to make you happy you probably are going to want to level up again and again. So you want to continuously every single month look at your numbers through that lens of “So what?”. Now when I’m saying look at your numbers well what does that mean? Well we’re going to talk a little bit about your income statement. You might hear it called your P&L. Ultimately the wording doesn’t matter as much, remember we’re not going to get caught up in the particular lingo. We’re going to focus on the concepts.
So your income statement is one piece of paper and it’s a super important piece of paper. It’s going to be thought of as having two broad categories. Top category is all the money coming into your business. So it’s gonna be all of the sales that you’re generating from different customers. It’s gonna be telling you what people are buying from you. The second section is gonna be all the expenses. All the things that you’re having to spend money on to be able to keep the lights on, to be able to build the product and to be able to deliver what it is that you’re intending to deliver. That piece of paper is really important because it’s going to tell you whether your business model is fundamentally working or not working. Now you may have also heard a lot about cash flow and the saying “Cash is king”. And cash flow is definitely particularly important but the income statement across time is going to be what’s telling you if your business model is fully functioning then your P&L will reveal that. I think where sometimes people get a little bit tripped up is when they’re looking at their income statement but not looking at it actively. So not looking at it from the perspective of, “How is this information helping me to grow my business?” The other hiccup that they end up looking at is they look at their cash flow statement and they say, “Man, I got this big injection of money from the bank and all is good” without really looking to say how much money is just a one-time someone lending money to you, whether that’s from the bank or an investor, again in a sense lending you money. Because your investor is in some way shape or form wanting to money back. Those are the things you’re going to find on your cash flow statement. But your income statement is really going to be the test of saying the products and services you’re selling out there, at the top of it are customers buying what are they paying? Are you getting them in the quantity and the volume that you need to be getting them into? I want you to train yourself to be spending more time looking at the financial statements and less time tracking down the details.
A big hiccup that people run into is they spend more time tracking down their receipt, making sure you know the mileage that they spend is perfect. So they’ll kind of keep these detailed logs and they really kind of end up focusing in on a three dollar claim for mileage without looking at their income statement and realizing oh we’ve got a pretty serious problem because i’m bleeding expenses every single month and i’m not attracting customers at the right pace. What I really want you to do is: 1) force yourself to be looking at the numbers regularly. And when you look at them I want you to get yourself into a state of mind where you’re looking at them really actively. So you want again and again and again every single number to do kind of a sanity check with yourself where you’re saying, “So what?” So what am I going to do as a result of this? Does this tell me that I should be spending more money on marketing? Does this tell me I should be hiring people so that I can shift out of this busy operator mode and actually truly become the owner of the business to be able to oversee it? Look at it through that particular lens of, “So what is this telling me?”