Are your products or services profitable?
Or, do you assume that you’re making sales so you must be making money?
To successfully grow your business, you need to understand the financial health of your company. You don’t need to be an accountant, but you do need to understand your financial statements, and you need to be able to answer a few simple questions about your business income, expenses and cash flow.
To know if your business is sustainable, you need to be able to answer these three questions. They are the Three Pillars of Financial Management™.
1. Are you making any money?
Your Profit and Loss Statement tells you how much revenue you have earned, your cost of sales and the total of all of your operating expenses. If your revenue is higher than your expenses, your business has turned a profit.
2. Is your business financially healthy?
Your Balance Sheet contains information on your assets (cash, equipment, accounts receivable, etc) and your liabilities (accounts payable, bank loans, operating expenses, etc). If your assets are worth more than your liabilities, it’s a good sign that your business is financially healthy.
3. So, where is all the money?
Your business might be turning a profit and have a very healthy balance sheet, but you may still be struggling to pay the bills each month.
That’s why a Cash Flow Projection is so important. It helps you manage your money so you can pay the bills and invest in your growth.
While a Profit and Loss Statement might show lots of money came in this month, a Cash Flow Projection reminds you that some of that money is already “spoken for”.
Listen to this 2-minute tip on Managing Your Cash Flow.
Many business owners put off doing their paperwork or keeping up with their financials because they are juggling all the other “hands on” aspects of running their business. After all, you have a lot of responsibilities, and it’s hard to be all things to all people; client service rep, salesperson, team manager, bookkeeper and you might also be the person who is doing the client delivery.
To build a successful business you need to get your finances organized and up to date. And, you need to understand your financial statements. Knowing your key financial numbers gives you peace-of-mind and allows you to make educated decisions as you plan the growth of your business.
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