With Your Financial Statements
your monthly financial statements
to make profitable decisions
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.
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
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.
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.
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.
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
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
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.
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.