your monthly financial statements to make profitable decisions
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.
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.
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.
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.
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.
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.
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.
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