We won’t, we won’t talk about the South African government. Never speak politics. Andrew, you’ve joined me today to help the listeners understand why knowing their numbers is, um, essential to the health of their, their practices, to the health of their businesses. Previous guests have talked about why understanding, um, [00:01:00] reporting matters, but it doesn’t take away necessarily the fear that many, many people working in healthcare face of, of counting.
And I don’t think it’s just in healthcare. So many people are just frightened of their numbers and by being frightened of them, I believe it creates more problems because you, You’re worrying about stuff you haven’t even got a mark in the sand for. That it actually becomes a, it becomes a health issue because people are anxious about the numbers.
I had a, I had a lady, a lady I was doing is some, some customized finance training for a bank at once. And this, um, lady came to me before we started the training and she, she was literally shaking. Um, she said to me, Andrew, I’m going to sit in the corner there. I’m retiring next year. I’ve never understood accounting.
Now she works at a bank. Remember? Never understood accounting before in my life. And she was terrified, absolutely terrified. Yeah. Where does this fear come from, Andrew? Because I know when we were arranging this, I mentioned that, you know, in a live or die, well, Monopoly has always [00:02:00] been a live or die game in our household from when I was a kid with my brother to still now with my son and granny.
Um, so when we play Monopoly, you know how to count. And even if you’re very, very basic, even if you’re doing noughts and crosses, you know how to count, you know, you’ve got to get a row of three. So where, and you were very keen on. We’re moving the fear through gamification, but where does the fear of the numbers come from in the first place?
Because as a kid you played football, you know who’s winning. Kate, Kate, you talk about monopoly and we think about what is monopoly. Monopoly is a game, so it’s fun, but monopoly is also cash. It’s all, it’s all about cash. Um, running a business is, is not only about cash. There’s a lot of other things to think about.
So it’s more complex. First of all, it’s more complex. Secondly, when we, when we learned, some people hate maths, right? And everybody thinks that if you’re good at maths, you, you should be an accountant. Well, that’s not true because maths is all about maths and accounting is all about where to put the numbers and what the numbers mean.
So it’s very [00:03:00] different. Um, and I think that a lot of people are terrified of the numbers being accounting, um, and the, and the books of record of their businesses, because they were, they were terrified, um, of accounting from school. Number one, because their accountant, their accounting teachers didn’t understand what they were teaching because they were taught how to teach accounting.
They were never accountants themselves. That’s my experience. Um, and then they practically didn’t enjoy it. They didn’t carry on with it and they’re not interested. It’s sort of like, it becomes like a mental block and that’s why so many businesses are struggling in the world today. There’s no doubt.
Because of the fear of, we’re not taught accounting in school here. So I think that’s interesting that there’s even accounting lessons in school because, well, I’m sure there are somewhere, but I certainly don’t recall that, um, but. So the fear of numbers that comes from [00:04:00] school. Carries on throughout life and there is a lack of what I think I’m hearing described is a lack of reference to when people are very safe in numbers.
So watching a football match, you know, or you’re playing a football match, kids playing a football match, you know, you’re winning or losing by how many goals are scored. So there’s plenty of examples. Or if you’re walking down the street and you’re looking for your friend’s house, you know, whether you’re going in the right direction or the wrong direction by the numbers on the door.
But what you’re describing is where we are all safe in numbers or using a mobile phone. That is lost. because of the fear that has accumulated in maths and accounting lessons in school days. And I think the problem is that, is that accounting isn’t just a, it’s not just a straight line. Like, you know, what is the football school?
Um, accounting is a lot more complex. So I mean, we, in accounting, we, we use the three financial statements. So we look at income statement. You can say the income statement tells us Are we making a profit or are we [00:05:00] making a loss? And we can go back and we can speak about what is income. Some people think that income is when we receive cash.
Income isn’t when we receive cash. Income is when we render the goods, so when we deliver the goods or render the service, we may not have received the cash yet. So the income statement is income less expenses gives us our profit or loss. Then we speak about the balance sheet and the balance sheet tells us what is About what we own and what we owe.
So what we own our assets and what we owe our liabilities. And a lot of businesses don’t look after a balance sheet because they’re basically running their business out of a till. Like a lot of hairdressers, they run their businesses out of the till. They got cash in, they need to buy something, they’ll take cash out the till and they won’t know whether they’re making a profit or loss.
Um, and they’re basically using the cash flow statement. So they’re not looking at the income statement, nor the balance sheet, they’re just looking at cash flow. And unfortunately, if we want to [00:06:00] build a business, if we want to build an asset, and one day hopefully sell our business, we need to have processes in place.
To actually look after and build our balance sheet. So we’ve got assets to sell. Um, and I think that’s quite, that’s quite an interesting shift in mindset, isn’t it? In terms of you’re creating with your business, you are creating an asset. What’s the purpose of your business? I mean, because it sounds like what you’re describing is what we all see is as many hobbyists and that’s never going to be sellable.
But by understanding your numbers, you can start to build value in your business. And it’s an asset that you’re going to be able to sell at the end. It is. And nobody thinks about that when they’re in that situation. We’re in the moment. We busy, we busy hustling. We, we, we try to earn, earn enough to live, to save, to retire one day.
But you know, we get to retirement age and we think, what now? Um, I’ve got this business. What do I do with this business? [00:07:00] Do I hand it to somebody or sell it to somebody? And is it actually worth anything? Because This business is Kate. This business is based on Andrew. And if Kate and Andrew aren’t there, is it actually even a business that we can sell, that we want to buy?
So that’s something to consider now before it’s too late. Or I presume as situations specific, like consulting where you might well be, well, I have got a job. I’ve created my own job. So I’m not, it’s not going to be sellable because I’ve created my own job. So therefore I’d better be taking money out to do something with it.
That’s going to give me my retirement. Yes. But even, even, even so, if you’ve got a business, you’re selling yourself, there must be something that you can do to create an asset that you can sell one day, whether it’s a succession plan or putting people around you, And putting processes in place, there is always a way to create an asset.
So what you’re [00:08:00] describing, what I’m hearing, Andrew, is that, well, this is my experience of, of when I went very early on in my days of setting my first practice to the accountant and I asked her how to look at my numbers. I was just having to go. And she just told me I was doing fine. And I was really not.
Very pleased because I was thinking, hang on, I’m tiny. I must be your smallest clients or one of your smallest clients. I can’t believe what I’m doing is just fine. There’s got to be a better way and you must know some better ways. I’ve got very frustrated that everything was looking backwards.
Everything was, well, that was 18 months ago. It feels irrelevant. Okay. I’m sure there’s lessons I can learn from it, but that doesn’t tell me what I need to be doing today. I’ve got more present knowledge and you’re really talking here about the future and you’re not talking just about the future 12 months you’re talking about.
When you went to retire, whether it’s 55, 65, 75, you’re really thinking forwards, where are we going and how are we going to make sure we get there? So, so maybe I, maybe I jumped the gun, but I think in terms of, in terms of that, so many businesses as well have, like I said, they have an accountant. And the problem [00:09:00] is that the accountant will sit with you and they will discuss.
the water that’s gone under the bridge already. They’ll discuss the history. They’ll discuss how well or how badly you’ve done. Um, and then of course, you’re not empowered or let’s say a person may not be knowledgeable enough to actually take that information and, and, you know, extract those gold nuggets to actually turn this business into even an even more profitable.
Um, and that’s where, that’s where a lot of accountants struggle. A lot of accountants are, is, is that, is they are accountants. They account for how well you’ve done, and they aren’t very entrepreneurial. You’ll, you’ll be very surprised. how non entrepreneurial a lot of accountants are. Because essentially it’s an administrative function to serve the taxman.
They’re just administering. It’s compliant versus, yeah, having a look at how much profit we’re making. [00:10:00] Mm. So how does somebody go about starting to, they’ve got an idea, right? I’ve started my practice and, um, yes, I would like to retire when I’m 60. And they know perhaps how much they would like, how does somebody go about starting to forecast and plan forwards rather than spend their life looking backwards?
I think get a good understanding of, of accounting and finance, get a, get a helicopter view. And I mean, that’s what I do. Get a helicopter view of. of your numbers. So you may have an accountant that might give you a profit and loss and a balance sheet once a month or once a year. Um, get to get, get some knowledge in so that you can truly understand what all that means.
Um, and then I would get to understand, you know, the things that you can do and then the, the levers that you can pull to, to be more profitable. Uh, to grow more value on your, on your balance sheet, because at the end of the day, your balance sheet is what you, you have. You walk into a business [00:11:00] with let’s say a hundred, a hundred pounds.
What, what, what, what is that balance sheet worth when you walk, when you walk out in 20 years time? And that’s what we, that’s what we want to do. We want to grow that balance sheet. Um, but you’re wanting to grow the balance sheet in a way that it’s not Reliant on you because you want to exit the business one day, um, you will get a much better price for your business.
if it’s not reliant on you. Um, yeah, that’s, I mean, it’s knowledge, it’s knowledge and learning. And then you can tie the numbers, the forecasted numbers that you would like to see to the activities that need to be done in terms of extracting you or marketing activities, pricing, you can start tying it all together and start looking.
I mean, something that made a big shift to me was when I started looking at lead indicators. I started looking forwards at what, what’s already booked in the diary for the next quarter or the next six weeks very particularly, and looking at the, what’s, what’s coming [00:12:00] rather than what’s gone. I can learn from what’s gone, but what’s coming, what have I already got booked in, what do I need to do?
Because you can do something about the future. You can’t do something about what’s gone. That’s right. So get your sales, sales in a box almost. You know how your sales and marketing arm needs to be something that is autonomous. It mustn’t rely on you. It must be able to be done by and picked up by somebody else.
Your delivery arm, same thing. It needs to be done by somebody else. Um, because that’s when you can truly say, I have an asset here. I can sell it and it doesn’t work. HR, everything. So Andrew, you help people get a grip of the numbers by using gamification. And I’ve never actually asked you what that means and looks like.
And I’m very, very curious because it sounds like we can go back to some of the. Yeah, games that take away the fear of numbers and make people [00:13:00] feel safe in numbers. Yeah, mine is very, mine is a very simple process where we basically teach the balance sheet, the income statement and the cash flow using a click, a click and drag, um, clicking and dragging of colored stickers and, and giving accounts names and, and, um, clicking and dragging numbers into the, into the accounts.
Um, and we speak about the income statement and the balance sheet. And we speak, we speak layman’s terms. So we speak about the balance sheet. We don’t talk about assets and liabilities and equity. We speak about what we own. We speak about what we owe and we speak about what we have at the end of the day, because at the end of the day, your balance sheet is, so what you have is your assets, less your liabilities.
And if you, if you think in your personal life now, and you add up all your assets, you add up everything you own, and you, and you subtract everything you owe, that is your equity. That is your net asset value that you [00:14:00] have as a, as an individual. That’s scary for some of us to do that calculation. Um, so we, so we have a look at it from a layman’s term, from a layman’s, um, yeah, from a layman’s angle, and then we look at an income statement.
So what is income? What is, what are expenses? How do we make profit? Um, how does the balance sheet relate to the income statement? So when we sell, when we’re selling inventory or stock, how does, what, you know, what, what accounts in the balance sheet are affected? What accounts in the income statement are affected?
Um, we’re selling stocks, our inventory and assets will go down, um, our accounts receivable might go up in, in assets, and I’m, and I’m talking accounting now, um, and our sales will go up and our cost of sales will go up. So we’ll make a profit in the income statement. So we look at the relationship between the two.
Yeah. We use gamification for that. So it takes away the anxiety of heaviness. Okay. [00:15:00] And you can take it, I don’t know, make me think of a chocolate shop or something, you know, how many chocolate bars have you got? How many chocolate bars have you sold? What did you buy the chocolate bars in for? You bought them in for a pound, but you sold them for three pounds.
And the, and the, and the beauty behind the game is that we can customize it for a corporate. So we can customize it, for example, healthcare. We can go to a big health care group and we can say, okay, fine. What are your, what are the transactions that the health care group goes through or encounters every month?
And we can upload those transactions into the game. And now we’re playing finance fusion for. Whatever healthcare group it is. Because you’re bringing the real, um, business into the game. Yeah. And, and, and, and, I mean, first we’d need to understand what are the learning outcomes required from the healthcare group.
Um, and we would tailor make those transactions to achieve those [00:16:00] learning outcomes. So is it, is it the sales team from the healthcare group? Um, is it the, are there hospital and clinic managers that we need to train? Who are we training so we can target our training to those specific individuals? So what I’m hearing is it’s not necessarily just the owner or just the finance team that need to understand the numbers.
It’s more than that. Absolutely. I mean, the training is finance for non finance. So it’s training for non finance department or non finance teams. So we’ve done training with sales teams, because you can imagine sales teams are negotiating with clients. Um, and we all know sales, sales just want to do the deal at all costs.
So the sales need to understand how the numbers work so they can see, you know, are we even making a profit here and how much do we need to sell to actually make enough profit [00:17:00] to cover our operating expenses every month? So that’s just one example. Sales, HR, HR people need to understand, or HR teams need to understand finance because they have budgets to run.
Marketing, sales, anybody, anybody non, anybody non finance. The whole, I’m a strong believer on, of enterprise wide finance training. The whole organization needs to understand finance because every single, every single action we take in business, no matter who we are, has a, has a, has an effect to the bottom line.
Because the purpose of a business is to convert your IP or your product, whatever it is, into cash in the bank. Yeah, yeah. And there’s other benefits you might want on the way and having, you know, missions and social contributions, but they’re never going to be possible if it’s not cash in the bank. And the problem is the finance, the finance, [00:18:00] uh, or accounting and finance is this, is this dirty secret, which is kept very secure by the CFO and the finance team.
Um, and they don’t let, they don’t let much out of the bag, um, because they want to control it. So they don’t necessarily want non finance to understand finance. Some of them are, some of them do. I’m generalizing now, but it is something that, um, that is kept, kept a bit of a secret. But actually, if everybody doesn’t understand the impact of their activities on the bottom line, everybody’s jobs at risk.
Exactly. And if you’ve got an awareness of, if I do this, this brings my pay home, if you’re in the business, or even if you don’t own the business, you’re a practitioner within the business, you know what the impact is, you know how you’re earning your salary as a minimum, and you know how that business needs to keep operating so that you can keep serving the people you want to serve, because [00:19:00] if it keels over, the lights don’t stay on, nobody gets the help that they could have.
Absolutely. And I mean, if I was the CFO of a, of a company, I would want all the non finance teams to understand accounting and finance because it’s going to make my life easier, people are going to understand the language I speak. And they’re going to take accountability for for their bit of the business when it comes to the bottom line, the profit.
So when we booked this, Andrew, you asked me about why did I think numbers matters to practitioners and I shared with you that when I used to have four clinics, my Revenue was here, but my expenses were here, and then one day I realized I was earning less than the cleaner, and something was really, really not right, so I decided it was time to dig into my numbers and, um, cut the, understood where the fat was, and understood where the profit was, and cut the fat basically, because once I had clarity of the numbers, The decisions that needed to be made were obvious.
It took away the pain. It took away the [00:20:00] unknowing. It took away the fog. It was just absolutely clear what I had to do. My revenue dropped, but the profitability increased because the expenses also dropped. So it went from being like that to being like that. But many, many people fear cutting services or products that are bringing in, I mean, revenue.
Because they’re scared it’s going to decrease the overall, um, income of the business without seeing that actually you could end up being more profitable by cutting some of the fat. No, we should actually be cutting the non profitable services and trying to sell more of the profitable services. So when you’re cutting the services, you’re also doing the activity that’s going to be increasing the sales of the profitable services.
Yes, because I mean, if you think about it, you’re becoming more laser shop focused in your business. And you, you’re also known for that, uh, [00:21:00] there’s less fog, there’s less mess. Um, it’s, it’s, you’re more efficient. You’re not stopping and starting different things all the time. You’re doing one thing, you’re doing it.
Well, you known for it and people start calling you and it’s a profitable and it’s, and it’s profitable and it becomes even more profitable as you, as you do it more and more, um, because you become more and more efficient at it. So for the practice owner that might be listening, where do they begin? What do they start just counting?
Where do they begin? They’ve recognized, okay, I need to count something and get over my fear of numbers and just have a look. Where do they actually begin, Andrew? Well, they can start with their left hand. It’s five fingers. Um, no joking there. I think the first thing they need to do is to take stock of their business.
Go and have a look at where, who your customers are. So who are your clients? What are you making out of your clients? What is it [00:22:00] costing you to, to deliver to your clients? And analyze what you’ve got at the moment, because there you’ll be able to see the different services that you’re actually rendering and which ones are profitable.
And which ones are not profitable, like you did Kate, exactly the same as what do that first, because that for me, knowledge is power. Um, and, and that is, that is pure power when it comes to, comes to your, your business. Um, and then of course you wanting to understand their expenditure, you need to understand what you’re spending money on.
You don’t want to spend 20 percent of your, of your income on Facebook ads and you’re not getting, not getting any revenue. So make sure that you’re not wasting any, any costs. And then I would just. Try to focus on the profitable, the profitable side of the business and focus on what, on what, on what works.
At the same time, you need to get an understanding of finance. You need to get an understanding of accounting. You [00:23:00] may have an accountant, that accountant, again, is playing a compliance role. They are just doing the numbers and giving you the numbers every month. You need to empower yourself and to actually get to understand what those numbers are.
mean, um, so that you can then take those numbers and look, you know, look forward and forecast forward and try to make, you know, more profit, um, more cash, collect your cash quicker and get processes in place. But knowledge, get, get the knowledge. Wonderful. Thank you very much. If people would like to hear more from you and follow your content, where can they do that, Andrew?
Uh, they can do it on LinkedIn or they can do it at www.financefusion.com.
