This is a guest post from Fiona McKenzie at Blue Note Solutions Ltd:
Although I am a Finance professional I would be the first to admit the possibility that numbers can be meaningless and thus boring. Numbers should be able to give you essential (and interesting) information about your business. The crucial issue is context.
So if you’ve ever looked at accounting information and thought ‘so what?’ you are not alone.
Consider this…
The number is 50,000!
??? (blank face, yawn)
It’s Acorn Ltd’s profit for the year!
Is that good?
More information:-
Acorn had sales in the year of £20 million.
Not sounding so good?
More Information:-
Last year Acorn Ltd had a flood at its main premises and made a loss for that year of £1 million.
Forecast loss for this year was £200,000
Not sounding so bad?
More information:-
Most other companies in the same industry made losses in the year.
Now sounding like a better result?
By drilling down to the figures in the context of what you know about the business and comparing to previous periods, budgets and forecasts, you obtain information not just about how the business has performed but indications of relevant action points for the future.
About the author: Fiona McKenzie is the Director of Blue Note Solutions Ltd. Fiona helps SMEs gain clarity and control of their businesses financial performance. Website: www.bluenotesolutions.co.uk Email: fiona@bluenotesolutions.co.uk
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Fiona, you hit the nail on the head. numbers don’t mean anything unless they are in context. In business it’s crucial to look at trends and a history
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Thank you for your comment.
I think one problem for smaller businesses is that the numbers they see most are their year end accounts. The ‘context’ required for these is taxation and/or company law. The numbers have little to do with the operating needs of the business. Additionally by the time they are prepared they are just examining the historical business results.
Context will give you meaningful business information which can be used to guide and direct the business. I have elaborated on this in the slightly longer version of this blog which is on my website.
http://www.bluenotesolutions.co.uk/whats-in-a-number/
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Fiona
I enjoyed this article. It explains the difference between raw data and useful information really clearly!
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Thank you. I’m glad I got the point across. Many people when presented with a list of numbers, say in traditional statutory accounts, find the numbers tell them little about their business. They then assume this is because of a deficiency in their understanding when what is needed is the proper context to provide useful information.
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Excellent example of numbers in context. I guess that is the key to reading any account results and determining where you stand. It needs to be in context.
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Thank you for your comments. Many business owners find numbers boring because they are not presented in a way that is meaningful, that tells the business story.
I see from your blog that you have learned that as well as being good at the business you need to keep a close eye on the numbers.
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