ExecuSpeak Dictionary: Run the Numbers
PHILADELPHIA ( MainStreet) -- Is the house affordable? Does the acquisition make sense? How does the new product make money? Is there enough money for that business trip? Is retirement an option? All these questions, and more, have the same answer:
Run the numbers.
Whether it's a complex financial model or a basic calculator and a pencil, the phrase covers a lot of options. Running the numbers implies there is more involved than a single and/or simple arithmetic calculation, though. The notion of running the numbers implies the arithmetic exercise is just that: something done again and again and again.
Is the house affordable? If the buyer's income and the taxes remain the same, the question of affordability comes down to the price of the house and the interest rate on the mortgage and the closing costs. The same set of computations might need to be done multiple times, each time changing one element of the equation -- such as keeping the price of the house steady while changing the interest rate, or keeping the interest rate steady while changing the price of the house. Companies such as Zillow (Z) offer online mortgage calculators to ease the pain.After the numbers are run and there are multiple arithmetic results, the information is examined and analyzed to answer the initial question and define the conditions. The house could be affordable at a specific price and a specific interest rate. What about the amount of the down payment? If that wasn't taken into consideration, then ... yes, you've got it, run the numbers again. Ready for a business trip? There are so many ways the price of the travel can be calculated. Many start by setting aside a specific amount of money and then the cost of different ideas and itineraries that look like they might work. Others make a plan and then run the numbers to see how much it will cost. Searching Expedia (EXPE) and Orbitz (OWW) is just the beginning. No matter how the plan starts, evolves, changes, then changes one last time, each shift and nuance results in the need to run the numbers once again. Finally ready to settle for a specific set of numbers? Perhaps establish a budget or an estimate or a timeline? Progress! Instead of running the numbers, it's time to run with the numbers. Know that those numbers might change too. But at some point it's time to stop running the numbers and start running the show. Carol Heiberger is the author of ExecuSpeak Dictionary. Her industry experience includes positions with Ford, Bell Atlantic (now Verizon) and a large energy utility. Her clients have included government entities, not-for-profits and businesses of every size. She has served as the COO of a start-up CATV/ISP company, director of operations and as an adjunct assistant professor for an MBA program. Her volunteer work includes service as a SCORE business counselor and on the loan committee for a microlender. Her education includes an MBA from Wharton. ExecuSpeak Dictionary is the result of her experience in industry and consulting and teaching. She can be contacted at Carol@execuspeakdictionary.com.
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