With over 25 years of frontline experience Tom Shay is America's leading small business
management
expert. He's a "Must Have" for your next event.
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Managing
With Your Financial Statements
Using
your monthly financial statements
to make profitable decisions
It
is very common for business owners, upon receiving the latest copy of
their financial sheet, to make comments to the effect of, "I see
payroll expenses are down", or "sales are down slightly but
we made more money." These are comments of surprise in response
to changes, which hopefully do not drastically affect the existence
of your business. These comments, however, are the first of a four-point
concern that you should have about your financial sheet and the information
it contains. The second concern is in regards to the timeliness in which
you receive or create your monthly financial sheets, the third concern
is your ability or decision to make a change, and the fourth is your
knowledge of what the financial sheets contain.
Let's
take a quick look at each, and see how your business stacks up. Comments
of surprise are to be expected, as long as they are within certain boundaries.
If you have been in business for several years, you should be able to
anticipate your financial statement for any month by examining your
statements from previous months and calculating the changes that may
occur.
If
sales for July of this year are more than July of last year, you should
be able to anticipate your cost of sales, and with an estimate of your
variable expenses, accurately calculate the bottom line and your end
of the month cash balance. Of course, there are many businesses that
have never felt the need to have this information. But those that do
gather and use this information within their business will tell you
that having this will often assist them in taking profitable advantages
of changes in the market place.
The
second concern is to ask how soon after the end of the month have you
received or created your financial sheet. While there is not a one correct
answer for everyone, the business that does not use their financial
sheets to assist in the month-to-month decision making probably has
little need to have financial sheets promptly. The business that can
look at their July financial sheets, and make minor adjustments to their
business plan for the next 90 days, will definitely want to be reviewing
the financial sheets by the 10th of August.
Can
you really use your financial sheets to make your business more profitable?
Let's look at two examples using a business that grosses $750,000 per
year, and has a net income of 3%. If that business could save only $100
per month in the expenses, that savings will affect the bottom line
as much as increasing sales by $40,000. And if we were to examine the
gross margin from this business, being able to increase the margin by
3/10 of one percent will add more to the bottom line than if we could
create a 13th month.
With
examples like this, not only is timeliness important, but also the ability
and decision to make adjustments which can drastically change the profitability
of your business. This leads us into the fourth concern; knowing what
is contained within the financial sheets. You may not have a degree
in accounting, but you should know about your financial sheets if for
no other reason than to save that hypothetical $100 we were just looking
for.
Expanding
your ability to understand and work with your financial sheets can reduce
the fees of an accountant. Most accountants would feel better knowing
that their client was actually using the financial sheet to manage the
business, as compared to only being concerned about the tax preparation
at year-end.
To
gain this knowledge you can find many choices in a bookstore, as well
as columns such as this in "Instant & Small Commercial Printer".
There may even be an accounting class available through a community
college or the Small Business Administration.
As
you are reading, you will need to know the difference in cash basis
accounting and accrual basis accounting. And, as you gain more knowledge,
you may find that you will rearrange your financial sheets to better
give you guidance. And, just like a captain steering a boat, you will
not be looking over the rear of the boat, but instead ahead to the future.
You will find that compared to just being historical information, your
financial sheets will now guide you into a more profitable future.
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This article is copyrighted by Tom Shay and Profits Plus Solutions, who can be reached at: PO Box 128, Dardanelle, AR. 72834. Phone 727-823-7205. It may be printed for an individual to read, but not duplicated or distributed without expressed written consent of the copyright owner.
Every time I see the logo for Target stores, I think about small businesses and the need to know which people to target as their customers. Of course, of most importance is the person who has spent any money with your business.
I ask businesses if they know how much the average person spends with their business. Most offer a quick response with a dollar amount. That answer is incorrect as they are telling me what the average existing customer is spending. The average person in any community spends no money with that small business.
Looking for new customers without any plan of how to do so is just spending money. That is why every small business needs to know how to find and use information. Find ideas in the March Small Business Advisory.
Employee retention; is it important? Or is it easier to lose an employee and wait for the next applicant to walk in the door? The Small Business News for March shares some statistics of the expense you incur when you make the change instead of working to retain a current employee.
Article of the Month
It is baseball season and we use the sport as an explanation of the cost of growing your business. In Boston's Fenway Park, left field has a wall that is know as the green monster.
And that is what growing your business is - a monster! You can't successfully grow your business without a plan and knowing you will have the cash on hand to pay for the growth.
Book of the Month
Are you selling something or persuading the customer? With your employees are you repeatedly telling that employee or are you persuading them to excel?
Influence: The Psychology of Persuasion by Robert Ciaidini is our suggested book for March 2026. Most definitely an appropriate read.
All this plus the Internet Tool for Your Business and a staff incentive idea for your business.
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With over 25 years of frontline experience Tom Shay is America's leading Small Business
Management
Expert. He's a "Must Have" for your next event.
Every time I see the logo for Target stores, I think about small businesses and the need to know which people to target as their customers. Of course, of most importance is the person who has spent any money with your business.
I ask businesses if they know how much the average person spends with their business. Most offer a quick response with a dollar amount. That answer is incorrect as they are telling me what the average existing customer is spending. The average person in any community spends no money with that small business.
Looking for new customers without any plan of how to do so is just spending money. That is why every small business needs to know how to find and use information. Find ideas in the March Small Business Advisory.
Employee retention; is it important? Or is it easier to lose an employee and wait for the next applicant to walk in the door? The Small Business News for March shares some statistics of the expense you incur when you make the change instead of working to retain a current employee.
Article of the Month
It is baseball season and we use the sport as an explanation of the cost of growing your business. In Boston's Fenway Park, left field has a wall that is know as the green monster.
And that is what growing your business is - a monster! You can't successfully grow your business without a plan and knowing you will have the cash on hand to pay for the growth.
Book of the Month
Are you selling something or persuading the customer? With your employees are you repeatedly telling that employee or are you persuading them to excel?
Influence: The Psychology of Persuasion by Robert Ciaidini is our suggested book for March 2026. Most definitely an appropriate read.
All this plus the Internet Tool for Your Business and a staff incentive idea for your business.
