I often talk about the importance of “Knowing your Numbers”. But what does this really mean?
To start with, many business owners are not sure what their financial statements are telling them, or even how to make sense of those reports your bookkeeper sends you every month.
A lot of business owners feel a little embarrassed that they don’t know more about their financial results or how to tell if their business is profitable and solvent from looking at their Profit & Loss and Balance Sheet. I’m here to say, it is OK. You are on a path to learning. You don’t have to be an accountant to understand your numbers, but as a business owner, it serves you well to get some help to get clear on what you don’t know.
Here are some important things to think about:
You know what income and expense drive your business, right? I know you do because you’re a savvy entrepreneur.
- You need enough sales to hit your revenue goals.
- You need materials/resources and labor to produce or sell your service.
- You need other expenses to keep the business running, like marketing, rent, utilities, auto, insurance etc.
- You need to pay yourself a living wage, and you want to show a profit so you can reinvest in growth.
- You need to have enough cashflow to pay the bills and cover debt payments.
Your financial statements need to help you make business decisions by showing you if you are on target with your planned income and expenses, and profit!
So how do you get there?
First you need a good layout and chart of accounts to be able to track the things that are important to track.
Second, you need to know that the information going into to the reports is accurate, so you need to have a detail oriented person recording your transactions in QuickBooks and that data needs to be reconciled with your bank statements and credit card statements every month.
Now, you have the foundation to move forward to not only analyze your results, but to do some real Profit Planning based on known data.
I offer Profit Planning classes and business consulting to help you move your business to the next level of growth and success. Feel free to contact me anytime.
To help get you started moving in the right direction, click here to download my free Best Business Practices Guide.