Why Numbers?

After graduating college with a BA in history and a minor in Spanish I couldn’t find a job.  I sent out a couple of 100 resumes but to no avail.  It was depressing.  My dad told me start your own business, you’ll learn about business and at least you’ll have a job.  It sounded good to me so I convinced my buddy, “Cat” to go in with me.  We looked around for a while and settled on a wine and cheese cafe.  Cat’s cousins included a lawyer and some carpenters so before you know it (really took much longer in real-time) we had it off the ground. We themed it like a library and called it The Liberry.  We knew a lot of people in town and the buzz was great.  The Liberry was off and running.

After a couple of weeks we had people waiting on-line to get in.  We hired Jay L, a great entertainer, and the lines got longer.  Cat and I thought we had it made.  We were ecstatic, that’s until we talked to our accountant.

In hindsight, I guess we should have figured it out.  It was just too confusing with all the money coming in and out.  Place packed, people waiting on-line, etc, etc, except the money in our bank accounts wasn’t going north.

My dad once again proffered advice.  He said, Jay, you need to learn something about business. Thought to myself: I thought that was what The Liberry was for.  He said, take an accounting course, that’s the language of business, it’s got to help.

So I enrolled at the local community college during the day as the Cat and I worked only at nights.  I was a good student so got that debits were on the left and credits on the right.  So what.  Then one class, I’ll never forget the prof starts a session on budgeting and forecasting.    He taught us how costs could be typed into fixed and variable and how these related to developing a forecast.  It was like someone hit me in the head with a hammer.  It was relevant.  It hurt.

I ran back to The Liberry to work on the numbers the accountant had given us.  I figured out how many people the place could hold and how long it took to turn a table. I calculated the average revenue per person, the average food and wine costs and the all costs that went into overhead. Then I put it all together.

Flash: The Liberry best case basis breaks even!

Why: The space was too small, our patrons stayed too long and while staying too long they spent too little.  And if that wasn’t bad enough, bringing in entertainment actually made the Numbers worse.

The Cat and I were blown away.

After the initial shock we rallied quickly, we decided to bid adieu to our beloved  Liberry ASAP.  We sold it.

There’s lots of take aways from this story.  The biggest one for me and the one that has shaped my entire professional life was learning how and when (that’s the easy part, before starting the business or making the investment) to use Numbers in business and investment decisions. I learned it the hard way.  It wasn’t textbook, it wasn’t theory, it was real money and real-time.   The good thing is I never forgot it and if you’re a reader of this blog I won’t let you either.

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About jaysanderscpa

Jay Sanders, CPA/PFS, CFP® "There's lots and lots of Numbers in business and your personal life but only some are relevant. The key is to know which one's matter, worry about them and forget the rest."
This entry was posted in Financial Literacy Basics, General #s, Personal #s, Small Biz #s and tagged , , , , , . Bookmark the permalink.

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