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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.