Feeling overwhelmed by financial reports? Wondering how to use numbers to truly drive your business forward?
In this episode of “The Business You Really Want,” hosts Gwen Bortner and Tonya Kubo break down the often dreaded world of accounting. They tackle the myths that hold business owners back from understanding their finances and explain why knowing your numbers is crucial for sustainable success.
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Accounting – Making Sense Of The Numbers That Matter
Introduction To Accounting For Business Success
Are you hiding from financial reports or using them to drive your business forward? That’s the question I have for you. I am back with the operations expert. My favorite operations expert at least, Gwen Bortner. In this episode, I predict, I have a salty prediction if that’s okay. I predict that this episode is going to get the fewest views and downloads of the entire show. If we come back in 2027 and look back in time, I predict still that this episode is going to have the least amount of traffic, listens, or consumption.
Why is that? We are talking about accounting. Now, if you’ve been with us since the beginning of the show, we are exploring the five key functions that make up business operations, what Gwen has called the gears. Now we’ve covered goals, we’ve covered effectiveness and now it’s time to talk numbers. Something that almost every business owner I know, unless they’re in the financial industry, seems to shy away from. Gwen, I want you to kick us off by telling us why accounting is so important in a business. Why is it a key business function?
Accounting is important because regardless of any other factor, it is the most consistent way to “keep score” of what’s happening with your business. What I mean by keep score, is the business doing what it needs to do to be a business or is the business not doing what it needs to be doing as a business and thus maybe not being a business at all? People put a lot of emotion around numbers, but numbers in themselves they’re just data points. There’s nothing actually emotional about the numbers. The emotion comes with how we perceive the numbers.
Accounting is essential because, regardless of any other factor, it is the most consistent way to track what’s happening in your business. Share on XYou said the numbers help you keep score, let if the business is doing what the business is supposed to be doing. I have to ask the question, Gwen, what’s the business supposed to be doing?
The business should be at a minimum making money for the owner. Now the owner doesn’t necessarily have to be the provider of service. We’re going to put that distinction in there. It needs to be making money for the owner. It needs to be paying all of its bills. We’re just going to call that generically positive cash flow. There are way more details in that. If you’re an accounting person, you can argue with me. I understand there really is a difference, but we’re just going to generically call that positive cash flow. It’s paying all of its bills. In that process is doing it in a way that is sustainable over the long term.
When I say paying all the bills, I don’t mean just scooting by, but paying people appropriate wages, given what they’re doing, where they are, making sure taxes are paid, all of those elements. The only real way to know that is by the numbers, by the bookkeeping, by the accounting. You can have a feel for it, but most people who don’t like numbers don’t actually have a good feel for numbers either. Like I can have a feel for numbers because I love numbers and I’m usually really close because I have an instinct about numbers and I love numbers, but someone who doesn’t says, “No, it’s really profitable.” It’s like we actually look at the numbers, not so much because they want it to be.
I think a lot of times we associate feelings with numbers, good feelings, and bad feelings, and we also make number-based decisions or decisions that should be number-based, we make them based on our emotions. We feel like we’re successful so we can totally make that investment. We don’t feel like we’re successful. We cannot make that investment. Meanwhile, we haven’t really looked at things.
Based on what you’re saying, what a business should do at the bare minimum, what you called generically positive cash flow should be paying its own bills and then also paying something to the owner, even if the owner isn’t the service provider. They should be getting some cut in the fact that they own a business. That’s ultimately what we call positive cash flow. When people are talking about numbers, I happen to think most people, when they talk numbers, they’re actually just talking about sales like, “This is how much I make. This is what my revenue is.”
It’s the easiest number.
I’m just speaking in my own world, don’t think that most people even look at their P&Ls. They go, “I have a bookkeeper. I have an accountant. I don’t have to worry about that.” I happen to know that you disagree. You do think that any CEO, regardless of their role, regardless of how big their operation is, actually should be looking at their P&Ls. Why is that?
Without actually understanding what the numbers are or being able to see how they change or don’t change over time, all of that is data and it’s historical data. You can use that to become predictive data later on. The fact is because it’s historical, it means it’s probably mostly right unless you have a horrible book. I mean, there are situations where you have really bad data, that garbage in, garbage out scenario. We’re going to use positive assumptions for the moment. You have people who are competent, who are gathering this information, who are reporting it to you, and whatnot, but only you can be the person who can be leading the ship as the owner.
That data gives you good information. The problem is people who only look at their information once a year when they’re doing taxes mean a whole lot of stuff was happening that they weren’t paying attention to. If it happened, let’s say in March of last year, and it’s now April of the following year when we’re paying taxes, the nuances, the subtleties, the things that were happening that might have been driving that change are probably no longer in any accessible memory. You cannot actually get good information from that. It’s like, “Sales went way down. I wonder why that was.” It’s like that’s not helpful. There may have been a piece of information there.
We don’t know because we weren’t looking at it on an ongoing basis. I feel very strongly that everyone should be looking at their numbers at least once a month and they need to be getting their profit and loss, their reports, as close to the end of the prior month as possible. Generally, you should be able to get them by around the 15th of the month. If you’re not getting January’s reports until March 15th, that’s a whole lot of time that has passed. That’s 45 days. A lot has probably gone on in your world. If you’re getting January reports on February 15th, you can probably take some action on them and make some changes that can reflect the data that you’re gathering.
Key Reports For Different Business Models
I always use a P&L report whenever anybody wants to talk about finances, I’m always like, “Let’s talk about your P&Ls.” Is that the only report somebody should be paying attention to or are there others? I’m going to ask this additional question. Do the reports that you should be paying attention to differ if you’re a solopreneur versus if you’ve got a team? Let’s define a team as three or more people.
Context matters.
Nobody is buying that as an answer, seriously. Like, no but I am. Yes.
It really is the answer because, for certain businesses, a P&L really is most of what you need. It’s got most of the information that you need. Other businesses that are of equivalent size but have a different business model may need to really be also looking at the balance sheet, which is something that most people don’t ever talk about. If you have a physical product-based business, there’s a lot of really important information on the balance sheet.
Let me pull you back there. Is the balance sheet the same as a cashflow report or are those two different?
Nope, that’s yet something different.
You can tell I’ve never worked in a product-based business, so I wouldn’t know that. Cashflow report is different from a balance sheet.
Which is different from the P&L.
Let me pause you there. I’m just going to give you some business types and I want you to tell me what reports matter most because I think that’s probably going to be faster. Maybe if I’m a service provider.
If you’re a service provider, most of the information you need is on the P&L unless you have accrued a ton of debt and then you’re going to need to be looking both at the cash flow and at the balance sheet.
That makes sense to me. Retail business.
Retail business definitely needs a balance sheet in addition to the P&L. Really everybody needs a cashflow report of some sort to see when things are coming in, when they’re going out and do we actually have money in the bank or are we always borrowing? Cashflow always needs to be looked at in some form or fashion.
A cash flow report is nice to have simply to know if you get a choice, should the bill be due on the fifth of the month or the 23rd of the month, right? Like if you remember cash flow.
There are a lot of people who say, “I’m cash flow positive.” It’s because their credit card balance keeps going up and up. It’s like, you’re not actually cash flow positive. The cash flow report will show it’s like, “No, this month you were $500 negative and next month you were also $500 negative and the next month $500 negative.” You’re still able to pay your bills, but it’s because your credit card balance just went up $1,500.
To me, most businesses boil down to service-based business or product-based business, which I would include retail. Is there any other business in there that would have to look at a different collection of reports that you can think of?
The P&L and the balance sheet really are the two biggies along with the cashflow. Those are generally big. The cashflow that a lot of the systems generate gets really confusing. I’ll just say that as well. It’s like, I don’t understand what it’s trying to do. If you aren’t using your accounting system properly and just because they’re a bookkeeper doesn’t mean they actually know how to do things properly, all of those reports can be giving you bad information.
If you’re not using your accounting system properly, all those reports may provide inaccurate information. Share on XWhat would be an example of that?
An example of that is not properly using accounts receivable, or accounts payable, depending on what your business form is versus what’s actually happening. I’ve seen people think that they’ve got more cash than they do, but it’s like, no, you will potentially have cash. They actually are recording it as a sale, but not in accounts receivable saying, “We haven’t actually gotten the check yet.”
I learned that not too long ago, but that’s the difference between like, collected revenue and booked revenue, right?
Booked revenue, collected revenue, yeah. There’s quite a few subtleties there. I say this because people assume that the professional knows the answer, and I will say they should, but not every professional knows about all of the details about all of them and sometimes makes assumptions that aren’t correct.
If I don’t understand my reports, I’m getting these reports. Who’s the best person to explain them to me? Is it the person who prepares the reports? Is it my accountant? Do I get a third party in? How do I get these reports to make sense so that I understand what I’m looking at each month?
Typically, this is a broad generalization because of course individuals have different levels, but broad generalization, bookkeepers are fundamentally data entry processing people. They know what they’re supposed to enter and how it’s supposed to do it. They can run the report, but they don’t necessarily understand what the report says. Like I said, I’m not trying to be insulting to bookkeepers because a lot of them have a lot more information, but just as a broad descriptor. Accountants often are folks who can help you understand what these reports mean, but some accountants are very focused in certain areas and may not have a broad understanding.
Just because they’re an accountant, just because they say they have a CPA doesn’t necessarily mean that they really understand the nuances of your particular type of business, but they should have an understanding of what the reports mean and be able to at least talk about why this is here and what’s there and so on and so forth. A lot of folks will hire a financial advisor, not in the investment way of a financial advisor, but more like a CFO or a fractional CFO.
A chief financial officer is generally trying to look at the numbers and see how they are interacting with the business as a whole. They tend to be a little higher up, a little more strategic, but sometimes because of that, they’re not as good at explaining because they’re a little too ethereal in what they’re looking at and there’s a little too much jargon and they will assume that you understand lots of pieces that you may not understand. My experience is people don’t like to ask questions that they think will make them look dumb.
If I had handed you my outline, you would not have given me a better segue to my next question.
I was pretty sure this was where it was coming from because this is what happens with everybody, right? They’re afraid that they’re going to look stupid.
Common Fears And Misconceptions About Accounting
I know that you don’t provide financial services. Our organization doesn’t provide financial services. We know some great financial service providers. If somebody needs that, we’d be happy to connect you. I also know that because you don’t provide financial services, a lot of business owners will come to you and ask you questions. They will share what their fears are about their finances because you’re safe. Based on your years of experience, what do you find are the most common fears around business finances or maybe even myths, misconceptions, whatever?
The first is I’m not good at math, so I cannot understand these reports that have numbers in them. The first thing is, if you’re using any automated accounting system, you don’t have to be good at math. It’s doing all the math for you. If you are able to dial a phone, which means you understand what a one and a two and a three look like, you understand enough about numbers. That’s the first thing. The other is it’s going to be complicated. Even if I’m wanting you to do some calculations, it’s arithmetic.
As I understand it, I don’t have kids, but my understanding these days is most second and third-graders can do the level of math that they’re required to do, particularly if you use a calculator. Don’t talk yourself into, I don’t understand. This is not calculus. This doesn’t have all sorts of weird symbols and craziness in it. It’s arithmetic. It’s adding and subtracting, occasionally multiplying and dividing. There are no square roots. I mean, like there’s nothing hard in this. This is pretty straightforward stuff.
If you can get past your own mindset about the numbers, that’s the first thing, because most people who say I’m not good at this have been told at some point in their life that they weren’t good at math. Now anything that has a number in it, I’m not good at, which just is not true, not true at all. Now, the next thing is they don’t understand how the numbers relate to one another and what one means, and how they work together.
This is where often they’ve talked to somebody who it makes a lot of sense to and they’re afraid to ask the question. If they have asked the question, they’ve often got an answer that still didn’t make sense and didn’t know how else to ask the question to actually get an answer that made sense to them. In this case, it’s one of those, it’s no one’s fault. It’s not their fault for not knowing eighteen ways to ask the question. It’s really not the professional’s fault for not understanding that they’ve got the curse of expertise.
That this just is so logical to them. They couldn’t possibly mean that they don’t understand this when what’s actually happening is like, “They don’t understand that.” That is what they don’t understand. They don’t know what that number means. That is the place where it gets confusing. The place that’s important is understanding how these numbers relate and where they move around and how changing this may seem like a bad thing, but actually, it’s doing this other thing and understanding how they work together. That’s the trick.
The three most common fears, misconceptions, whatever you want to call them, that you see is that people think understanding the numbers requires being good at math. That was really interesting to me, that these reports are complicated. I think what you really said is that, though they may look complicated, it might be complicated to look at these spreadsheets and go across in columns, or I have seen reports that are multiple tabs on a spreadsheet with like we’re on the triple Zs in columns, and it’s crazy. At the end of the day, all it is is basic arithmetic. It’s addition, subtraction, maybe some division, multiplication. You might have to carry one here and there, but it’s most things that you learned before you left sixth grade at the very least.
At the very least, and it’s so easy these days with a calculator. I’m old enough that I had to do all of this math before calculators even really existed.
That’s my favorite horror story to tell my children is there was a time when you weren’t allowed to use calculators in the classroom because it was cheating. Now they’re just like, that’s efficient.
If you’re old enough, it never occurred to you because there was no such thing.
Finally, I would say, angst almost around not understanding how the numbers relate to each other.
That’s the piece that I would love to say there’s a magic formula, but you need to find the right person who can explain it to you. Unfortunately, it’s not always the person it should be, which would be either your CPA or your CFO.
Using Financial Data To Drive Business Decisions
Let’s say, I’m 100% bought and sold into this idea. I am going to look at my numbers. My numbers are not evil. They’re not telling me I’m evil. They’re not telling me I should close my business because I had no business starting a business in the first place or any of that. How do I use the data that I get to inform my decisions moving forward? Can you give me two examples?
The first is being able to watch it consistently over time. Like I said, at a minimum once a month, but you may if you’ve got in-house bookkeeping or whatever, you may be able to look at the numbers once a week and see what’s actually happening so that you can start saying, “This went up when that happened, but it took four weeks before it went up.” You can say, “I did that thing again in four weeks. Did sales go up or did they not.” You can start looking for trends and see cycles. See patterns. That’s the first place to see where can you see patterns and/or trends. They’re a little bit different because patterns will repeat over time and trends are giving you a direction like we’re going up or we’re going down or all of those things. That’s the very first thing, patterns and trends.
Patterns and trends. I’ll give an example of that just cause I happen to work with a lot of businesses that their patterns tend to fall in an academic year. Their sales are almost zilch in January and almost zilch in July. One business, was a friend of mine, actually. She’d spent three years with this goal, “I need to increase sales in July.” Every January freaking out that like, “I have no sales in January.”
I’m never going to sell anything ever again.
She was just like, it’s the first month of the year, this is proof that my business is no longer useful. We sat in we went to a strategic planning class, and that’s when we were encouraged to pull our financials from the last few years and look at it. She was like, “Wait, it’s every January, it’s every July.” At first, she was thinking, “I have to do a sale, I have to do a promotion.”
The person who was facilitating the class said, “Is it possible that your customer just doesn’t buy during those months?” Her customers happened to be teachers. Do you think teachers want to buy anything in January or in July? No, they are on vacation. That’s an example, like just a very tactical example of how you can use those trends and patterns to inform your decision-making down the line. In her case, she chose to make January and July her off months. She takes a month-long vacation because she can.
Now what I was just going to say is all of a sudden you realize, “Maybe I don’t even need to work. What if I just planned that ten months out of the year was going to fund twelve months?”
Which is what she did. That’s one example is patterns and trends. What’s the second example?
After all that, I lost the question.
Sorry. I was asking for two examples of how you can use your financial data to inform your decision-making. The first one was patterns and trends, which I thought was great.
The other one really is being able to get accurate numbers on profitability. When I say profitability, it can be a loaded word. There are lots of ways to define profit in the way that you want. What I’m really talking about is, I’ll say, a very historically traditional accounting way of this much money came in, this much money went out, what’s left over. That’s profit. Now I say it can be defined in all sorts of ways because depending on what your business organization is you may or may not take a salary.
If you don’t take a salary because of organizational structure, a whole different conversation, you may say, “I’m really profitable.” I say, “How much do you draw out?” They draw out their entire profit to pay themselves to do the work. That doesn’t show up on the P&L. This is one of those sneaky things that actually shows up on the balance sheet. It looks like, “I make $100,000 a year.” I’m just grabbing a number. I actually pay myself $120,000. The reality is you’re $20,000 in the hole. Where is real profitability?
In this case, that’s an overall business profitability, but it’s also looking at individual products. How much of this do we sell? How much does it cost to deliver it? Whether it’s personal time, your service time, your support people’s time, any support things you do, you send gifts, you send any other thing, whatever all of those pieces are, is the thing actually profitable? I was just hearing a story of someone who grew a business really fast into several like I think it was $6 million to $8 million, but they weren’t really looking at the numbers and what they realized is they were able to sell $4 million and it only cost them $5 million to do it. They weren’t looking at the numbers.
That sounds like they’d be better off not selling anything. Let’s just say I’m listening, I’m watching, I’m probably just listening, even if I’m watching this on YouTube.
I’m the one person who’s going to watch it because it’s accounting.
The one person who’s probably my fourteen years old because she’s very interested in numbers right now.
I love her.
Next Steps For Confronting Financial Fears
I know you do. I understand the importance of Knowing my numbers knowing what they mean and reviewing at the very least a P&L but most likely a P&L in a balance sheet. I am willing to confront my fears around that and overcome them. I’m no longer afraid to look stupid and sound stupid when I ask questions. I also am really excited about the idea of understanding those numbers enough to the point to make better decisions moving forward about my business. Where would you suggest I go from here? What’s my next step?
You have to understand your numbers well enough to make better decisions about your business moving forward. Share on XThis one for sure, you know what my answer is going to be because it’s my favorite resource when it comes to numbers, and it is Profit First by Mike Michaelowicz.
You just opened a whole can of worms but that is okay.
I know I did, but for me, it’s a great place to start. Now people may read it and it’s like, “This is super easy to implement.” It can be, but if numbers are a scary thing for you, this is probably not going to be easy for you to implement. This is when you need support. For me, the first thing, if numbers are not your natural thing, is to find someone who explains them to you in a way that actually makes sense.
That when you get down to it’s like, “I understand why that’s true. I can take that information and do something with it.” It is also comfortable saying, “Still doesn’t make sense. Help me more.” That could be a fractional CFO. It could be your CPA. It could be a business advisor like myself. It could be a profit-first professional, which is a part of a profit-first bigger program. There are all sorts of people. It could be, but most importantly, if it’s not your natural thing, find someone who can explain it to you in a way that resonates with you.
Ultimately, the takeaway is if it doesn’t make sense, find someone who can help you make it make sense. Don’t be embarrassed, I promise you. Promise, Scouts, honor. You are not the first person on the planet that the numbers did not make sense. You are not the first person to go to whomever it is and ask the question that you are asking. I just know that because I know all the questions I’ve asked. If you’re thinking of asking them, I’ve probably asked them first because this is a new foray to me. I am somebody who did hide from my numbers at one point. If you’re reading to us, I would love to turn this conversation over to you.
I want to know how you feel about accounting and number crunching in your business. The best way for you to tell me how you feel about this is to email me at Tonya@EverydayEffectiveness.com. I want you to email me and tell me your story because it’s going to help us inform future episodes of the show. The more stories that we collect to tell in the context of building the business you really want, the better the show is, but also the better the world of businesses for other entrepreneurs just like you.
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About Your Hosts
Gwen Bortner has spent four decades advising executives and entrepreneurs in 45+ industries. She helps women succeed in business without sacrificing happiness by identifying their true desires and aligning their business functions. She spots overlooked bottlenecks and crafts efficient plans toward sustainable success that center your values and priorities. Known for her unique approach to problem-solving and accountability through the G.E.A.R.S. framework, Gwen empowers clients to achieve their definition of success without sacrificing what matters most.
Tonya Kubo is a marketing strategist and community builder who helps entrepreneurs build thriving online communities. As co-host of The Business You Really Want and Chief Marketing and Operations Officer (CMOO) at Everyday Effectiveness, she keeps conversations on track and ensures complex business concepts are accessible to everyone. A master facilitator with 18+ years of experience in online community building, Tonya takes a people-first approach to marketing and centers the human experience in all she does.
