It doesn’t take long to feel thoroughly inspired when listening to CNBC’s “The Profit” star, Marcus Lemonis, talk about business. He is an absolute wealth of information and has a proven track record of success to back up every piece of advice he offers. It seems that this entrepreneur could whip a dying business into shape, even in his sleep.
If you have watched his show, then you most likely have heard Lemonis stress the importance of knowing your business’ numbers. According to him, failing to know your business’ numbers inside and out is one of the biggest mistakes that a business owner can make. As a matter of fact, when it seems clear that a business is even a little unfamiliar with their numbers, Lemonis promptly tells them to figure them out, then come back to discuss business matters once these numbers have been clearly defined.
Lemonis firmly believes that the most overlooked skill of owning a business is basic accounting. If you are a business owner and you’re thinking to yourself, “Oh, I have a CFO and a full financial department to handle those matters,” then Lemonis would candidly say in return, “Nope, that doesn’t cut it.” He preaches that business owners better know exactly how much they are earning and that if they don’t, then they simply don’t know their business at all.
So, now that we have presented the teachings of Marcus Lemonis, let’s expound upon them. What are these all-important numbers exactly? And can you currently spit them out on command? According to Marcus Lemonis, the following three numbers should be imprinted into every business owner’s brain:
1. Annual Sales Revenue
As stated above, Lemonis believes that if you are unsure of the exact number that your business is making right now, then you simply do not understand your business well enough. Business owners must base this number on a trailing 12 months, and not the calendar.
2. Gross Profit Margins
This number is crucial to understand because it represents the money left over from revenues after accounting for the cost of goods sold.
3. Expenses, as a Percentage of Your Gross Profit
It is crucial for business owners to know where their spent dollars are going and to acknowledge whether or not these dollars are generating some type of a profit. Your business’ expenses must be determined as a percentage of your gross profit, not simply as a percentage of your sales. This is due to the fact that you pay your bills with gross profit, not with revenue.
These three numbers provide the foundation upon which every business decision must be based. Can you immediately provide an accurate answer for these numbers? If not, Lemonis would strongly advise going back to the drawing board, clearly defining these numbers, then proceeding to talk business matters, both internally and externally.
Let’s conclude with a quote from Marcus Lemonis that perfectly sums up the seriousness of knowing your business’ numbers:
“To not have a solid understanding of how much you make and how much you sell is a crime. To not understand how to make decisions based on numbers is a mistake. Too many people make their decisions based on their gut, but your financial statement is your road map to success.”