How Knowing Your Numbers Changes the Way You Run Your Business

You can run a successful business for years without really understanding what is happening underneath the headline figures.

Sales are coming in. Customers are buying. Wages are getting paid. The business looks busy.

But that doesn’t necessarily mean you know what is making you money, where margin is disappearing or whether you can comfortably afford the next hire.

That was one of the biggest themes in our conversation with Marc McArdle on What One Thing.

Marc grew up around the family business and eventually joined it himself, helping it grow across retail, wholesale and IT support. But it was a difficult post-COVID year, when profits disappeared, that forced him to get much closer to the numbers.

Here are some of the biggest lessons from that process.

Having accounts isn’t the same as understanding your business

It’s pretty standard practice for a business to have accounts. Far fewer owners have financial information they can use to make decisions during the year.

Marc had annual accounts, but his management information developed gradually. It took time to get the numbers working in a way that gave him a useful picture of revenue, costs and profitability.

That distinction is key, because year-end accounts tell you what has already happened, while management accounts let you see what is happening now.

For Marc, that eventually meant being able to look at several years of figures and make bigger decisions with more confidence. For example, when considering the cost of an operations manager, he could see whether the business could definitely sustain the salary rather than simply hoping it could.

Better financial information doesn’t make the decision for you. It makes the decision less of a guess.

Rising costs can quickly destroy your margin

One of the problems Marc uncovered was simple: costs had increased, and pricing hadn’t kept pace.

That can happen without noticing straight away, surprisingly easily.

A supplier increases their prices. Software becomes more expensive. Wages rise. Delivery costs change. None alone is a big problem, so the business keeps charging roughly what it charged before.

But gradually, the gap between what you sell something for and what it costs you to provide it gets smaller. The business can still look busy while profitability deteriorates.

Turnover alone tells you very little. The more important question is what is left once you have delivered the work or product.

Pricing gets easier when it stops being emotional

Putting prices up makes many business owners uncomfortable.

We imagine customers complaining, leaving or deciding they can get the same thing cheaper somewhere else.

Marc’s business eventually increased prices because the numbers showed they needed to. And the feared backlash largely didn’t happen.

There’s an important lesson here. Pricing becomes much easier when you understand why the price needs to change.

If you know your costs, understand the margin the business needs and are confident in the value you provide, you’re making a commercial decision rather than plucking a number out of the air and hoping customers accept it.

It also becomes easier to accept that occasionally a customer may decide the new price isn’t for them. Not every customer has to remain the right customer forever.

Better numbers give you context, not just warnings

At one point, Marc was looking at margins constantly as he tried to understand what had gone wrong after COVID.

The problem was, he was too zoomed in, so everything looked worrying. Now, he can see the bigger picture.

That’s one of the less obvious benefits of better financial information. Good numbers don’t only tell you when something is wrong. They can stop you from overreacting when it isn’t.

One weak product, one expensive month or one unusual cost doesn’t necessarily mean something needs fixing immediately.

Context helps you distinguish between a genuine problem and normal business noise.

An outside perspective can expose what you’ve stopped seeing

Mentorship played a significant part in Marc’s journey too.

One of his mentors had already built and exited a business and could look at Marc’s situation without being caught up in the day-to-day operation.

After a brutal post-COVID year, when the profits they’d made had effectively disappeared, that outside perspective helped identify one of the central problems: their margins needed attention.

That sounds simple with hindsight. But when you’re inside a business every day, simple things can be surprisingly difficult to see.

You know why every decision was made. You understand the history behind every cost. You are emotionally attached to people, services and ways of doing things.

Someone outside the business doesn’t carry all that baggage.

A good mentor doesn’t necessarily give you the answer. Sometimes their biggest value is helping you see the problem more clearly.

You still need enough knowledge to question the experts

Business owners cannot become experts in everything.

You need accountants, IT specialists, lawyers, HR advisers, marketers and other people who know far more about their subject than you do. But outsourcing expertise shouldn’t mean switching your brain off.

Marc gives a great example in the episode of a business being discouraged by their in-house IT person from moving to a better CRM system because of an objection involving nominal codes. Because Marc understood both the IT and financial language, he could see that the objection didn’t make sense. Nobody else in the room knew enough to question it.

You don’t need to know everything. But you do need enough understanding to ask, “Why?” when something doesn’t add up.

Growth eventually requires the owner to change too

Marc’s journey isn’t only about numbers.

He also talks about the realisation that he can’t continue being involved in everything. As a business grows, the owner who once kept everything moving can become the person everything is waiting for.

Every decision comes back to them. Every problem lands on their desk. The team can only move as quickly as the owner can respond. They become the bottleneck.

Marc is now working towards putting more of the right people in the right seats so he can spend more time doing what he believes he is best at: developing and growing the business.

This’s another example of why understanding the numbers matters. When you know what the business can afford and how it is performing, you can make decisions about people and growth with far more confidence.

Know enough to make better decisions

Marc’s story isn’t about becoming obsessed with spreadsheets. It’s about having enough information to make better choices.

Understanding your margins. Knowing when costs have changed. Being able to price with confidence. Seeing the bigger picture before reacting to one number. Knowing whether you can afford to recruit. And having people around you who will challenge your assumptions when you are too close to see clearly.

Those things may not sound particularly interesting or exciting, but they can fundamentally change the way you run a business.

Hear the full conversation with Marc McArdle on What One Thing, hosted by Phil Davenport of Affirm IT Services and Hayley Baxter of Corbar Accounting.