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Learning Business Tradeskill: Learning to Count

Larning to Count

Learning to Count

Business tradeskill is a package of 5 separate skills:

  1. persistence
  2. facing the facts
  3. minimizing the right risks
  4. learning by doing
  5. grasping numbers

Today, we’re going to talk about grasping numbers, i.e., learning to count. I know… numbers scare some people. But it doesn’t have to be that way for business.

Let’s dispel a myth. When I talk about having a grasp of numbers I’m not talking about being a bookkeeper or accountant, business analyst, economist or engineer. In fact, being a “quant” might not be the best foundation for grasping numbers as a business owner. Nor am I talking about being good at the “gotcha” puzzles we often see posted on the net these days; the kind where the answer doesn’t seem to make sense. Grasping business numbers is much simpler. In fact, we first learned to count for business in primary school.

It’s true. There are aspiring business people who are fundamentally unable to work with numbers. If you’re one of them and you want to own a business, I recommend you find a partner who’s comfortable with numbers. Problem solved, if you think of yourselves as sharing tradeskill between you. However, if one partner forgets that fundamental reason for the relationship, then the challenges multiply fast.

Suppose you don’t want a partner, or you simply want to master this basic tradeskill yourself. What does that mean… “grasping numbers”?

Learning to Count in Your Head

Grasping numbers, in a business sense, requires two things: (a) being able to add, subtract, multiply and divide in your head, and (b) being able to associate a number with a business event or activity.

Fortunately, it’s possible to learn and practice both.

There are lots of places online, but I recommend a book:

Doing Simple Math in Your Head
W.J. Howard
Chicago Review Press, Chicago Illinois, 1992
ISBN 978-1-55652-423-3

Instead of tricks, Mr. Howard uses some simple principles, along with lots of exercises. Since we’re (re)cultivating a lifelong skill, it won’t hurt to do it right.

Why should we be able to do this simple math in our heads? Because these numbers act as compasses to tell where our business is headed; tripwires to tell us something is wrong, and ticklers to tell us that we’re onto something good. We want… no, need… to have this sixth sense constantly on hand. Our eyes are remarkable information gatherers. Wire them to a brain that sifts that sifts information and focuses attention on the unusual, and we have one of the essential elements of tradeskill. We’ll be acting before others even know they should be. We get extra time, we get a jump on the competition, and we start making all sorts of decisions more confidently.

Numbers come in two kinds; those involving money, and those involving some part of operating your business.

Learning to Count Money

So… our accountant has just handed us two pieces of paper. One of them says at the top “Balance Sheet”, and the second is labeled “Profit and Loss”. What now?

“For the first seven years of my business career, I was at the mercy of my bookkeeper. She was oracular, and I waited nervously and anxiously for the close of every month’s profit and loss. It took fifteen years before I understood the double entry method of accounting.”

Paul Hawken

Those are two very important pieces of paper. But those aren’t the numbers we learning to count for tradeskill. Here’s Paul again:

“I have a friend who…can glance at (the profit and loss) and tell within seconds whether it is right or wrong. This is not brilliance, intuition, or voodoo. It is simply result of his never forgetting the essential ratios and relationships of his business.”

Paul Hawken

That’s where we want to be, because that means we can spot a problem very early, when it’s very fixable… or an opportunity, before it passes us by. So let’s talk about grasping money; money going out (costs) and money coming in (revenue).

It’s very important to get into the habit of writing down what we buy, rent, or pay out, and the amount. Soon, we’ll see a pattern, relationship between what our activities and our costs, That’s what we want to remember, so that well be able to estimate how much we’re spending, anytime.

Similarly, it’s important to get into the habit of writing down how many customers bought what somethings, and the amounts they paid. Again, we’ll see a pattern; soon, we’ll be able to estimate, anytime how much money is coming in based on how many customers we have and what they’re buying.

When the money going out (costs) or the money coming in (revenue) doesn’t seem to be what it should, we’ll know right away. Experience will teach us that we should be looking at certain business activities to see if they’ve changed. Or, we’ll be able to see a change in the business and know, right away, knowing how it will affect costs and revenues.

That’s grasping money. Wait a minute… don’t we make out a household budget, and watch what we spend? Exactly. If you already do that, then you already appreciate the essentials of cost accounting. If you don’t, then you can start acquiring that calculator in your head by doing some home budgeting.

Do we pay attention to money coming into our bank accounts? Alright, you can think of that as revenue, and then note what happened to cause that deposit. You’re already thinking about revenue.

Learning to Count Other Things

Now, let’s talk about grasping other important-to-our-business numbers. There are lots of numbers, but we’ll only need the few that tell us about our specific business. Let’s take three types of businesses and talk about the numbers we might want to record and track.

In retail, we want to keep track of the number of visitors, the number of buyers, and the number of items sold, and number of sales. Those numbers let us quickly figure out how effectively we’re getting the word out, how we’re converting shoppers into buyers, whether we have the right stock on hand, and whether our buyers are leaving with full shopping bags.

In service businesses, we want to keep track of number of jobs schedule in a day, the number of jobs worked, the number of late service person arrivals or missed appointments, and the number of return visits. These numbers tell us whether people are using our service, how much work is being done, and the quality of our service.

Manufacturing businesses can be harder to understand and control. Here, courtesy of Quality Digest and Mark Davidson, are some examples:

  • on-time delivery to commit. This is the proportion of time that we deliver the product when we promised it to the customer.
  • manufacturing cycle time. Measures the speed or time it takes to make the product, from the time the order is released to production to finished goods.
  • time to make change-over. Measures the time it takes to switch a manufacturing line or plant over from making one product to making a different product.
  • capacity utilization. Indicates how much of our total manufacturing output capacity is being utilized at a given point in time.
  • downtime ratio. This ratio of downtime to operating time is a direct indicator of how well our equipment is being used.

It’s possible to track a lot of numbers describing our business, but we’ve used only a few here, because we’re looking for those simple, few numbers we can calculate and keep in our heads. Remember, grasping numbers is about developing a feel for our businesses. If we live with the important numbers every day, we’ll know right away when the business changes, and be ready to think and act.

Especially for those of us who find it hard to grasp numbers, who find it hard to count, there’s a wonderful example of a whole company that learned to count. The company is SRC (comes from the original name, Springfield Remanufacturing Company). The boss, Jack Stack, wrote a book about it called The Great of Business, where he tells us and shows us what learning to count can do for a business. But it’s a great read.

The Great Game of Business Book Cover

The Great Game of Business Book Cover

Honestly, I need to say this again; just because I wrote, and you read, this post doesn’t make either one of us one bit better at learning to count for our businesses. We’ll have to learn by doing, starting with simple budgeting, and then moving on to count the important things we do. No substitutes.

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2 Comments

  1. One of the best post and bio I have ever and I really do mean ever in life. Makes your mouth drop to the floor kind of Bio(Mine sure did).

  2. Pingback: Business Tradeskill; What is it? - GoodBusiness

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