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Managing
With Your Financial Statements It is very common for business owners, upon receiving the latest copy of their financial sheets, to comment, "I see payroll expenses are down," or "sales are down slightly, but we made more money." These comments indicate surprise in response to changes-which hopefully do not drastically affect the existence of your business. These comments, however, are the first of four concerns you should have about your financial sheet and the information it contains. The second concern is in regard to the timeliness in which you receive or create your monthly financial sheets, the third 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 indicating 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. For example, if sales for July of this year are more than for 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 month-end cash balance. Of course, there are many businesses that have never felt the need to have this information; however, those that do gather and use this information within their businesses will tell you that having this information will often assist them in taking profitable advantage of changes in the marketplace. The second concern is to ask how soon after the end of the month you have received or created your financial sheet. While there is not one correct answer for everyone, the business that does not use its 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 its July financial sheets and make minor adjustments to its 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 percent. If that business could save just $100 per month in expenses, those savings would affect the bottom line as much as increasing sales by $40,000. If we were to examine the gross margin from this business, increasing the margin by .3 percent would add more to the bottom line than if we could create a 13th month. As we can see from this example, not only is timeliness important, so too is the ability and decision to make adjustments that 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 you pay an accountant. Most accountants would feel better knowing their clients were actually using the financial sheets to manage their businesses, rather than being concerned only with year-end tax-return preparation. To help you gain this knowledge, check out the selection at your local bookstore as well as columns such as this in many trade magazines. There may even be an accounting class available through a community college or the Small Business Administration. As you are learning, you will need to know the difference between cash-basis and accrual-basis accounting. As you gain more knowledge, you may find that you will rearrange your financial sheets to better give you guidance. Soon, just like a captain steering a boat, you will not be looking backward to the past, but rather ahead to the future. You will find that your financial sheets, rather than being simply historical information, will now guide you into a more profitable future.
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MAY 2024
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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.
Small Business
The May Small Business Advisory is titled "Planning for a successful accountant" and is appropriate for many with the April 15 tax deadline having passed.
Did you work with your accountant? Or, did you just give them a bunch of papers and wait to receive a completed tax return?
Successfully working with an accountant requires a partnership. This month's Small Business Advisory gives suggestions of how to make this happen in 2024.
Small Business
We see that many small business owners have too much of a focus on the "top line" of their income statement.
Increasing revenue is great, but it is not a cure all for any challenges your business is facing. And sometimes, incresing revenue can create a challenge.
Who is your customer? Some small businesses have no focus. Their customer is whoever calls or walks in the door.
And some small businesses have determined which customers, in sufficient numbers, they should spend their efforts to attract.
The article of the month shares an old Southern rhyming couplet about business; "The bertter you niche, the more you get rich."
Lean Startup by Eric Reis is our suggested book for May.
As the title suggests, the reader of the book would be someone that is starting their business. However, we see more value than just that.
Perhaps you have been in business for many years. We think this book could give insight to items, and methods, that a small business owner should think about with their business today.
