What the Numbers Are
In this section, you’ll get a good working definition of the most important terms and documents for business finance.
Each toggle will have a video and document linked up to it.
What the Numbers Mean
In this section, we’ll clear up some common misconceptions in business finance.
Each toggle will have a video explanation inside.
But first, check out this video for an Intro to the Myths.
MYTH: All categories matter equally
MYTH: All that matters are the amounts
MYTH: Profit = Cash
MYTH: Growth is always good
MYTH: 1% is insignificant
When you’re done with this video, head over to Asana and complete your off-site preparation task on the Power of 1. This concept is also addressed on page 231 of Scaling Up.
What You Can Do About Them
In this section, I’ll link up some of the most crucial resources. We’ll learn what areas to watch, how we can influence the numbers, and what we can do with the money that we generate.
These are crucial to understanding how the numbers effect you and how the numbers effect the profit share.
When we speak of the biggest levers, we mean what adjustments have the greatest effect on the bottom line (by category). There’s a bit of a discrepancy between Chandler and I on the biggest levers of the P&L. I want to give you both perspectives, just so you’re aware of how we approach this.
Chandler told me he believes the biggest levers are:
- Affiliate Fees
- Coaching Fees
- Marketing Expense
- Operating Expense
I believe the biggest levers are:
- Affiliate Fees
- Marketing Expense
- Labor Expense
Why do we differ? I think Chandler is looking at where we can make improvements moving forward, while I’m looking at the biggest categories and how any change (good or bad) in those areas makes a huge impact to the bottom line. Both perspectives are valuable. This also explains why we both spend so much time watching Affiliate Fees and Marketing Expenses (ad spend).
For another perspective on the biggest levers, Keith Cunningham says there are only five levers you can pull if you’re unhappy with your operating cash flow (which is slightly different from what we’re saying above). He says the first two are on the P&L; the last three are on the Balance Sheet:
- Spend less.
- Sell more.
- Reduce Accounts Receivable (AR) days.
- Reduce Inventory days.
- Increase Accounts Payable (AP) days.
There are the biggest levers, from three perspectives.
2016 vs. 2017
Sadly, I cannot find the video from this discussion, however, I can give you a short summary.
Basically, around the turn of 2017, I made a presentation for Chandler that showed how we could bring in the same revenue in 2017 as we did in 2016, but we could double our profit. It only required a handful of small tweaks, most of which had already been made by the end of 2016.
How was that possible?
In the first half of 2016, SPS had made some poor financial decisions. But by making that handful of small tweaks in the second half of 2016, we were able to turn the business around. We witnessed the truth of Keith Cunningham’s old adage, “Just don’t do anything stupid.”
Sure enough, in Q1 2017, we brought in almost the exact same revenue as Q1 2016, but we doubled our profit. We hope the rest of 2017 is just as successful, not just with increased profit, but with increased revenue as well.
Cash Acceleration Strategy
Summary of 4-Day MBA
Summary of Simple Numbers
Once you’ve been successful at generating cash, you’ll need to have a plan for all of this extra cash, otherwise it will quickly disappear. Greg Crabtree recommends using the cash in this order of priority. We tend to agree. You can find this list on pages 216-218 in Scaling Up or you can check out the sheet below:
Watch the Webinar
In this section, I’ll tell you where I learned all of this goodness. Please watch the Keith Cunningham webinar. It will put a nice bow on everything we’ve been learning in the Financial Literacy Program.
Keith Cunningham Webinar (click to play)
- Tony’s message: 0:00-15:55
- Keith teaches: 15:55-55:25
- Keith pitches: 55:25- 57:57
- Keith answers questions: 57:57 thru end (Nuggets in here)
Simple Numbers, Straight Talk, Big Profits – Greg Crabtree
Scaling Up – Verne Harnish
The Ultimate Blueprint for an Insanely Successful Business – Keith Cunningham