Knowing Your Numbers Helps Keep Your Business On Track
By Razelle Janice Drescher
The Basics
Most businesses have financial statements that reflect income from sales, the cost of doing business, and the resulting profit or loss. Monthly financial statements show this information. How to interpret this information is vital to navigating your business operations day-to-day for decision-making that impacts your bottom line. Financial statements are a reflection of what has already happened. Adding a cash flow system helps you understand what is happening more immediately and can reflect changes in your marketplace that may impact your profitability.
As a business owner, you need reliable financial information to understand what is actually happening in your business. Here are some questions to guide you:
- Are your products and or services priced correctly?
- Are you making money from each sale or losing money?
- Are you taking all your costs into account?
- Do you understand that the cost of doing business includes what it costs you to produce or acquire your product(s) and/or services as well as the indirect costs in your business that you have to keep running the business?
- Have you projected your additional costs as your business grows?
- Are you putting aside money to pay your taxes?
Reviewing your financial statements monthly provides the clues you need to ensure your business is moving in the right direction. Costs can change based on your strategy for growth. Are you taking that into account?
How Planning Can Impact Your Bottom Line
One way to establish a more proactive approach to understanding your numbers is to start with the profit you want and work backwards. What would it take to achieve that profit? How many sales would you have to make? How many employees would it take? How would that increase your costs?
Would you need additional equipment or machinery? When you look at your numbers this way, you see what it would take and whether that is a realistic way to go. Is the operating model you are considering workable?
How Do Cash Flow and Budgeting Help?
Having a Cash Flow System gives you an idea of how you are spending your money. It gives you an idea of how to allocate the funds you have per department to cover the costs that the department incurs. This can help you establish a more specific budget for the upcoming year, quarter, or month. This creates financial accountability within each department or key area of your business.
Why is Knowing Your Numbers Important?
Over the years, I have had clients who have paid a price for not knowing their numbers. Here are some of the consequences.
- Losing money on each item sold because it isn’t priced properly.
- Running out of money and scrambling to cover expenses.
- Working very hard without a return on your investment of time and money.
- Lack of clarity about the timing of new hires and new equipment purchases.
- Not recognizing the increasing costs that are draining your bottom line.
Gaining clarity about establishing and maintaining a profitable operating model for your business is essential. Do you know the numbers in your business? Are there missing pieces that would give you the clarity you need for good decision-making? Many businesses use an outside vendor to track and manage their financial condition. But it’s still the responsibility of the business owner to be aware of what’s happening on the financial side of the business. Abdication of financial responsibility isn’t an option for success! Call for a free consultation if you have questions -707-326-5681 or email