Let’s Talk: Can you build a profitable business without financial skills?

“I don’t really understand my business’s numbers” is probably the most common complaint we hear from new business owners with no finance background.?

While most businesses have a basic financial function in place, many do not have access to the quality financial management information required to capitalise on opportunities, increase profitability, and mitigate risk.?

And, well, numbers can be boring for many people. Unsurprisingly, many owner-managers are not particularly interested in numbers. They are more interested in running the business, managing it, and assessing its success through sales rather than confusing numbers.

Our experts discuss how to build a profitable business if you don’t understand the numbers in this week’s Let’s Talk.

Let’s Talk...

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Jason Toshack, Vice President and GM ANZ, Oracle NetSuite

“With the stresses of being a business owner, it is easy to become overwhelmed by numbers and financial management, especially if your business is growing fast. However, not having an understanding of your finances can make it difficult to interpret true performance, It is therefore important that business owners prioritise simplifying the financial management process.

“Cloud-based software like an all-in-one business management solution, or ERP, can help businesses view all their key financial data in one easy-to-read dashboard. Robust platforms can also optimise efficiency by automating core processes such as financial management and providing real-time visibility into performance.

“Having a greater understanding of your business performance, will help you drive strategy and growth, ultimately contributing to profitability. Using the right tools can simplify financial management processes and help you make better business decisions at the right time.”

Jane Sarah Lat CMA, Consultant - Financial Planning & Analysis, Verizon

“Imagine that you are sitting at the driver’s seat of your car. To get to where you want to go, you need to get inputs from the dashboard in front of you that tell how fast you are going, the gas level, as well as warning signals to signal in case something is wrong.

“Building a profitable business is the same. To achieve the vision and goals, we need to understand the numbers, metrics and indicators that tell the story of how the business is performing. Having this knowledge allows you to make better informed decisions that drive business success.”

John Pirlo, Founder, Ninja Parc

“I’ve seen a business built on many things, like a burning passion (mine included!), but if your business is going to be sustainable and grow, there must be some attention given to the ‘right’ numbers to ensure you can analyse decisions before you make them. This will prevent you from overcapitalising and ultimately help you to make a profit, so you can continue doing what it is you love.

“This doesn’t mean those who don’t understand the numbers can’t have a successful business. You just need to ensure you have some professional support. It’s one of the reasons many of our franchisees come on board – because they need help with some of the fundamentals so they can focus on the parts they’re passionate about and skilled at. If you’re open to it, as you run your business you will also learn a lot, including the numbers that actually matter.”

Brent Paterson, managing director, ANZ, SNP

“Data is essential to businesses. Organisations increasingly rely on data for decision-making not only across day-to-day operations but also in terms of their vision, productivity, survivability, and competitive stance in the market. Business leaders must have a clear understanding of their data to make more informed business decisions and, ultimately, generate more profit and success for the business.

“Without the right underlying technology or processes, this can be difficult. Increasingly, businesses that rely on enterprise resource planning (ERP) software need to move to the cloud and SAP S/4HANA to better position themselves for future success. To do this, they need to have a clear-cut and comprehensive data migration strategy in place to ensure they bring the right data with them at the right time. This includes knowing which data needs to be archived versus which data needs to be cleaned and migrated to ensure the business can continue to leverage its data for better decision-making and profitability into the future.”

Alasdair Godfrey, Chief Executive Officer, HTANALYSTS

“Established businesses who want to remain profitable and new businesses who want to become profitable have fresh challenges in the dynamic world we live as it heals from the pandemic but remains challenged by climate change, fake news and escalating conflicts. Businesses that concern themselves with only traditional financial metrics could rapidly see their profits drop off a precipice as their customers prudently switch to competitors who embrace greater purposes like social impact and population health as part of their organisational mission.

“Equally talent retention is already increasingly difficult as a younger work force becomes hungrier for a meaningful role that not only pays the bills, but also affects broader impact on societal benefit. Businesses need to urgently re-evaluate traditional profit models and not just understand the numbers with a purely fiscal lens. Specialists in impact investment, analysis and communication are critically underutilised and by the time some businesses accept this new reality profit will not matter, as it simply may not exist.”

Sharon Crombie, CEO & Founder, MicroChilli

“There are several things that contribute to building a profitable business. Ultimately, though, you might find you’re doing the work you love with a slew of amazing clients, but if the cash isn’t there, you won’t be able to keep the lights on.

“So, a basic understanding of numbers is essential. While I would always recommend looking to the support of an accountant and bookkeeper here, there are four key things to keep in mind if you’re going it alone.

“These are: calculating your pricing in a way that accounts for all of your overheads, creating a budget for the business, and inputting data into your cash flow forecast on a minimum weekly basis, so you can see how you’re tracking against your actuals. Finally, pay attention to your balance sheet. This really is the holy grail, as it provides an accurate snapshot of the current financial state of your business.”

Linden Toll, Chief Executive Officer, Apricity Finance

“The simple answer is no. Any profitable, successful business must understand the numbers and in particular cash flow management. Peaks and troughs are a natural part of any business’ life cycle, so being well prepared with a flexible balance sheet, enables you to act quickly and make the right decisions.

“Any number of issues can arise within a business – payroll is due, your own customer fails to pay a large invoice on time, machinery breaks down requiring replacement, stock doesn't arrive to fulfill customers’ orders or you simply run into seasonal cash flow problems despite good sales and operating profitably.

“Good cash flow management ensures your business always has enough cash to meet expenses when they need to be paid, even when they are unexpected.”

Chi Mai, Founder and Creative Director, S-kin Studio Jewelry

“To build a profitable business from the start you absolutely need to know your numbers. profit margin, cost per acquisition and lifetime customer value are three of our most considered metrics when it comes to e-commerce profitability. Without knowing these numbers, it can be difficult to make decisions. Data-driven decisions will also drive growth for the business in a sustainable way, as well as ensuring cash flow, especially for startups.

“The best way to build a profitable business is to look at your numbers often. Whether or not that means quarterly, monthly or weekly – they can tell you more about your business than you realise. For example, when facing a lower performing month we were able to look at our numbers and redirect our resources to where the highest ROI (return on investment) was. We were also able to reduce costs and focus strategically on retaining customers where the majority of our revenue comes from.”

Rakesh Jayaprakash, product manager, ManageEngine

“Business success is increasingly linked to the ability to leverage data to make better decisions about operations. Failing to use the numbers at your disposal could negatively impact your bottom line. Regardless of the industry, data is business-critical; it tells you so much about your organisation's operations, supply, customer experience, and more.

“Businesses are increasingly looking to technology to help them make sense of the vast swathes of data available at their fingertips with the use of artificial intelligence (AI) and business analytics growing rapidly to support data-driven decision-making. Last year’s Digital Readiness Survey found that 58 per cent of organisations across Australia and New Zealand had increased their use of AI to improve their business analytics. Additionally, 69 per cent of organisations believed AI had delivered measurable results for their business, with 58 per cent reporting business analytics had improved decision-making.

“The pandemic has further demonstrated the value of data in making smarter business decisions and helping business leaders better identify how and when to adapt and streamline their processes. Combining data with the power of business analytics can help organisations more accurately forecast future trends and find potential courses of action that will help build more profitable businesses. Failing to do so means businesses ultimately risk falling behind their competitors.”

Sam Phelan, Country Leader ANZ, Sumo Logic

“Understanding the numbers is essential to have a profitable business. However, to properly and efficiently understand the numbers, businesses must implement tools to help interpret data.

“As more companies adopt digital processes, more data is available to track and improve performance. An example of this trend is Observability, which takes data outputs from an application or service and uses it to understand how the application is performing. For many companies, application performance - including understanding if it is reliable and secure - is important to deliver services to customers. This deep visibility can revolutionise how businesses track and measure success, providing clear metrics for future growth.

“To more efficiently understand the numbers, organisations are also using artificial intelligence (AI) and machine learning (ML) capabilities across their infrastructure. AI helps companies work faster, be more efficient and automate their processes. Making it easier for your business to interpret data helps save time and resources, ensuring your business remains profitable.”

Grant Case, regional VP and strategic accounts APAC, Dataiku

“By accident, yes, long-term, no. Understanding the numbers has three criteria:

1. Know the data mechanics, e.g. reading a PnL
2. Access to the data, e.g. sales forecasts for last year
3. Relationships within the data, e.g. optimal ratio between promotion and sales

“Nearly every successful business leader meets the first criteria; building a profitable business lies in the last two. Without access and guidance from data, decisions are just as likely to mislead as be correct.

“Data acts as a compass. Data judges decision efficacy and guides leaders toward better decision-making. Timely reporting and data access give a management team the critical tools for success.

“Data relationships are the map. In a few organisations, data specialists uncover profitable relationships and surface them to decision-makers. In reality, specialists are scarce and business leaders still need to uncover profitable relationships and make decisions to survive and thrive. This is where AI is making the difference. Specifically, Everyday AI involves a platform approach to make data more accessible to all stakeholders, enabling all users to generate insights and make profitable decisions.”

Claudia Pirko, Regional Vice President, Account Management Organisation, BlackLine

“Growing a profitable business in Australia today is pretty much impossible without a high-performing finance department. Our 2021 survey of Australian finance professionals revealed that just 37 per cent are confident that their finance function has the skills required to help their organisation grow and adapt in the coming years. More than one in four respondents also said that not everyone in their finance team has the skills to support strategic analysis and planning.

“Delivery of business growth and profitability as opposed to purely survival will be dependent upon building a finance function that is as technology literate as it is financially literate. ? Organisations will also need to re-evaluate training and development and embrace digital transformation, replacing legacy tools and technologies with cloud-based continuous accounting technology which provide actionable insight into the numbers. This will ensure you are well placed to build a profitable business as you navigate future opportunities.”

Will Drysdale, APAC Sales Manager, ActiveCampaign

“The small business landscape has evolved significantly in recent years with the effects of Covid being felt by most, if not all businesses across Australia.? Some are thriving and some are just fighting to survive. As a result, digital adoption has become more important than ever enabling business owners to access and gain insights from the numbers which are now more readily available than ever before.

“Alarmingly, more than 50 per cent of businesses are likely to fail in their first three years of operation.? However, with the adoption of business management software we’ve seen businesses able to transition from having quarterly meetings with their accountants to understanding the health of their business by having live insights available at their fingertips which then enable them to react and make informed decisions in real time. As a growing business ourselves here at ActiveCampaign, we understand how meaningful the numbers behind your prospect and customer engagement are and that it could be the difference between thriving or surviving.”

Marcus McNamara, Head of APAC, Sana Commerce

“Nowadays, knowing your numbers extends well beyond clarity on your financials or inventory. For companies with web shops, the data gained from e-commerce analytics can provide holistic insights into customer behaviour, stock planning, and profit prediction.

“A big challenge for many business-owners is knowing where to look, what to look for, and how to use that information across channels to get a 360-degree view on how your business is performing. Thankfully, with the right tools that allow for integration, a lot of this process can be automated for you.

“With integrated e-commerce, you have the benefit of learning from a single source of truth. Here’s an example – identifying segments prone to cart abandonment can allow you to push customer-specific promos, preventing potential churn and optimising conversion in the process.

“Without analytics, you may find yourself investing time and energy into a strategy that simply won’t yield ROI.”

Robert Brown, Chief Financial Officer, Marketplacer

“The key way to truly build a successful business is to understand the financial levers of your business. Doing this allows you to manage costs responsibly and spot opportunities to grow.

“This doesn’t mean that all that’s required is a Profit and Loss statement. It also means that you need to have the right metrics in place and to review them consistently. These right metrics should allow you to identify what's happening now, what might happen in the future and what needs to change.

“The metrics that deliver benefit will always vary from sector to sector. For a SaaS company like Marketplacer, we are a growth oriented business so we want to understand new customer acquisition, the cost of acquiring, onboarding and managing those customers, and then are we meeting their needs and helping them be successful?”

Michelle Kvello, Director, Lantern Partners

“I’d argue that you can, in the short term, but it certainly won’t be a sustainably profitable business. I think the trap that some business owners fall into is that in the early days, when they have a much closer handle on the business; it’s smaller and more manageable, it’s possible to get by without really understanding the numbers. Then as the business starts to grow it can be tempting to just keep on operating in the same vein.? However, business fundamentals change and as we’ve all seen over the last couple of years there can also be unexpected macro issues which you need to react quickly and effectively to.

“To grow the business profitably and sustainably you really do need to understand the numbers and more importantly not shy away from looking at them. You need to know when you can take a calculated risk and it’s very difficult to do that without understanding. Quite often people have a fear of numbers that has been ingrained over the years and frankly some people can overcomplicate the issue.? Most importantly, as a business owner, you can’t abdicate all responsibility for your numbers to your accountant or bookkeeper.? Your numbers tell the story of your business and so if you don’t understand them, you don’t understand your business.”

Tony Nicholls, founder and director, Good Talent Media

“Knowing the numbers is a huge part of strategic account management. We're managing accounts, we're managing relationships, we're creating strategies, we're securing media for clients. Ultimately, we're servicing clients. We're giving them what they want. We're helping them achieve their goals. When you get to the stage in your career that you know the numbers and you understand your stable in commercial or financial terms, you start taking a different step up in your career.

“You really shine and stand out in an entirely different way because you're becoming a commercial person in a commercial world that understands the worth of what you're doing. It's not just doing your job or surviving in your job -- you're actually thriving to the point whereby you understand the significance of the numbers that you're working with.”

Katie Kinraid, General Manager LSP & Carriers, E2open

“You might have great ideas for a business, but as an owner, if you don’t understand your numbers, it can become extremely difficult to keep up. One of the most common issues businesses face is running into problems when it’s too late. It’s important to have an overall understanding and visibility of the revenue, expenses, profits, and debt of a business, to help recognise potential problems before they arise.

“In saying this, it can be hard to focus and get on top of a business’s finances when operational issues arise. For example, the logistics industry in Australia has seen numerous challenges since the pandemic began, and with China under strict lockdown protocols once again, shipping backlog seems inevitable. But with consumer demand still high, it’s important that organisations, from retailers to logistics companies have the right solutions and strategies in place for visibility over their entire networks to drive a profitable business. The right solutions will provide businesses with data-driven insights to manage their operations effectively, while giving them a better understanding of their numbers, potential issues and how to overcome them.

“Some businesses can fall into the trap of solely focusing on the revenue and profitability, however it is vital to keep a close watch on any debts, and expenses. For example, deadstock has long been a challenge in the retail industry with most businesses jumping on the trend of fast fashion, employing speedy design-to-sale practices and rapid stock turnover. Coupled with major imbalances in stock caused by the current unpredictable nature of the supply chain, deadstock is piling up worse than ever before, and so are business’s debt and expenses. Closely monitoring spend and expenses will help business owners notice these trends, making it easier to find ways to optimise their operations to build a more profitable business.”

Jonathan Dent, Chief Financial Officer, DesignCrowd and BrandCrowd

“While a novice entrepreneur can easily recognise how much revenue they generated last month or year and navigate forward, it takes a more sophisticated knowledge set to build profitability.

“Leaders should consider shifting gears in a business akin to steering a ship. When you turn the wheel the response isn’t immediate, it takes some time before you see the shift having an impact. So when you make decisions you need to understand your numbers to know what impact they will have, without having to wait and see. Business leaders must make informed predictions, backed by numbers, to assess how decisions made today will affect the business in one, three or 12 months' time.

“While it’s not impossible to build a profitable business without fully understanding the numbers, it makes your job harder and can leave your business open to risks and missed opportunities. The bottom line is that making the right decisions early on will ensure you spend your way to profitability much sooner.”

Marco Zande, Marketing & Digital Comms Executive, WLTH

“You can definitely try to build a profitable business if you don’t understand the numbers, but you would drastically decrease your chances of success. Every business has varying goals, and the numbers are the vital metrics to measure if you meet them or not.

“The numbers aren’t strictly financial. Sales revenue, net profit margin, and gross margin are all crucial, but other metrics such as customer loyalty and retention are key.

“Finding out where the business stands at present can help business leaders set goals for 6 months, 1 year, or 5 years down the line. Analysing past performance provides insight into what can be done to improve. Forecasting future numbers can assist in cash flow management. Benchmarking the business to other successful companies in the industry can be a recipe for success.

“The key lies in the decision-makers to analyse the data for constant improvement. Those businesses who experience success without understanding the numbers may often find themselves regressing or losing out to the competition.”