Dragons eat numbers for breakfast
If you have ever seen Dragon’s Den, you will know that numbers matter a lot to a serious investor. Yes, the details of the business will probably be the first thing the dragons consider, and the person before them can make a whole world of difference, but it is the numbers that count. With the right pitches, you can almost see the future opportunity cogs deep within the brains of these mega-wealthy investors start turning and occasionally emerge as a twinkle in their fire-charged eye. Occasionally their vision of where they could take the business might even be revealed through a slight smile.
But the first time you see them making notes in their Moleskin diaries with their Mont Blanc fountain pens (or an equally opulent equivalent) is when the numbers are declared at the end of the pitch.
As the questioning starts and the interest is gauged among the line of profit-motivated minds in their fancy chairs, an array of the usual enquiries emerges. They might ask about the validity of sales promises, the basis for such ambitious valuations, to inspect patents or softly enquire about the story and the person behind the business.
But one thing is for sure. No matter how eloquent the pitch, interesting the proposal, or attractive the personality of the hopeful entrepreneur before them: if they flounder with the numbers they are in trouble.
The rules of the den, as I understand them, are that you cannot bring your paperwork in with you. That may seem a little harsh to the uneducated onlooker. But is it really? Surely nothing can mean more to abusiness owner than their numbers! These details should be tattooed foremost in their mind.
You live or die by your numbers in business
The likes of Peter Jones and Deborah Meaden did not become super-wealthy and achieve celebrity entrepreneur status by taking numbers for granted: and nor should any other business owner. Whatever you do, however well you do it and even the rate at which people buy your stuff; it doesn’t mean a thing if you are running your business blindly or at a loss. And running a successful business means more than merely selling your goods for more than you paid for them: it means creating positive, sustainable bottom-line profit for you, the business owner.
To do that you need to know your business-critical numbers and, more importantly, understand what they mean.
These are the key numbers you need to know:
- Turnover: how much money the business generates from sales
- Direct costs: how much it costs you to produce and/or deliver your goods and services
- Gross profit: sales minus direct costs, top-line profit figure
- Gross profit margin (%): gross profit/turnover x 100. A measure of the efficiency of your business
- Accounts payable: the amount of money that you owe to suppliers, staff, etc
- Accounts receivable: the amount that is owed to the business (usually from sales)
- Cashflow: the cash coming into and out of the business (income and costs)
- Net profit: the bottom-line profit after all costs and expenses are removed (the amount you pay tax on)
- Target profit: what you are realistically predicting to achieve in the future
If you have a clear understanding of these numbers (and assuming they are all positive), then you will keep the dragons at bay. And if they are really impressive you may even end up with an offer.
Your numbers matter more now than ever before
You may have seen the offer I made on LinkedIn earlier this week. If you need help, please get in touch. If you know another business owner who needs my help please share this with them now.