Why don’t entrepreneurs connect their vision to their financial information?
I should clarify what I mean. From experience, it seems like the majority of small business owners have a vision. They want something and are moving toward it.
These same entrepreneurs get financial reports every month (at best) and typically don’t get much from these except an affirmation that things are still operating.
I believe the reason why is because financial information is too complicated. I don’t mean it’s too difficult to understand. I just mean what comes back to the business owner often looks like this:
It’s just a bunch of numbers, and none of them stand out or have any real meaning. And they are looking at the past, which you can’t do anything about.
So there is a gap. There is a vision for something you want. And there are financial reports that have very little impact on that vision. So they entrepreneur is left working very hard to grow, but not really having a great understanding of what it will take to get there.
I believe the key to bridging this gap is to dramatically simplify.
The 80/20 rule, the law of the vital few, states that for many events roughly 80% of the effects come from 20% of the causes.
The 80/20 rule basically is saying that whatever it is you want does not depend on a million factors, but a few things that are most important.
So the key to business, and the key to financial savvy is uncovering what are those “Key Drivers” to success and then tracking them relentlessly. Here is how we break this down in our new course, DRIVE: The Entrepreneurs’ Financial Roadmap to Success.
1. Simplify the Vision
If your vision can’t be distilled down into a 2 minute conversation it’s too complicated. You should have a very clear, distinct goal in mind. And it should be measurable.
Not that the number is goal, but it’s the measuring stick to know if you are winning or losing.
Take the time to write down a clear vision with a clear measurable goal in mind.
2. Identify the Key Drivers
In our course, we break down how to identify the 3-5 key metrics that will determine whether or not you are on track to hit your goal. Then we show how to project out and actually control the results so you succeed.
For now, though, you can probably make a lot of progress on your own just by thinking this through and asking some questions.
What is your goal?
What is preventing you from getting to that goal?
What are the biggest factors that will contribute to that goals success or failure?
Financial insight does not have to be a foreign language. The goal of your financials is to drive profitability and cash flow to get what you want.
Unfortunately, for most businesses they are left looking backward and feeling confused by their numbers.
If that’s you, I think you’ll get a lot from our Ten Rules of Forecasting Checklist. I invite you to try it out.