Here’s a daunting statistic: During the first three months of 2014, 382,000 small businesses started. During the same time, 364,000 small business stopped operations.*
As a small business owner, I found this statistic frightening! Given that the majority of my clients are also entrepreneurs, I figured this is a topic that needs to be addressed. How can we make sure we are not part of the businesses that don’t make it? Well, it is not just about working your butt off (we both know you already do that), it’s about understanding what is happening with your finances. Full stop.
As business owners, we need to make sure that we have the right tools, knowledge, and strategies to support us in managing and growing our finances. An effective tool is the book, “Profit First” by Mike Michalowicz. Now hold on a minute, before you rush off to purchase the book, take a breath. “Profit First” will teach you how to start putting some profit aside each month, BUT this will only happen if several things occur first.
- Before we start, let’s review the basics of the Profit and Loss Statement and Balance Sheet. In generic terms, the Profit and Loss Statement shows us how much money came into and out of the business due to general business activities. The Balance Sheet shows where the company stands at a particular point in time – how much money is in the bank, how much money is owed to others, and the equity in the business.
- Next, let’s see how clean your numbers are. What do I mean by “clean”? Are your personal income and expenses mixed in with your business income and expenses? Is your business income put into the correct account? What accounts are the business expenses, credit cards, and loan payments made from? When is the last time you reconciled your bank, credit cards, and loan accounts? Are they spotless or could they use a little polishing up? (I know, that was a lot. So again: a deep breath. No need to panic, this is all about beginning to foster clarity and understanding. If you’re not clear yet, let’s connect!)
- Finally, let’s make sure everything is up to date. Has all the income been deposited? Have all of the payments been made? When you run your financial reports for this year are they similar to past years? Is there a significant discrepancy? Do you understand why? Are you able to pay your bills on time each month? Are you able to take money out each month for your salary? As the owner, do you have to “loan” the business money?
As a small business owner, it is our responsibility to understand our financials. Remember, we can bring the horse to water, but we can’t make him drink. The same goes for the business owner: the Bookkeeper or CPA can bring you your financials, but they can’t make you understand. If you feel you need deeper support or clarity around your numbers, please reach out today! We’ll be hosting online classes beginning this summer to teach you everything you need to know about numbers, profit, and strategy. Email us at hello@SpireBusiness.com!
* Source BED from the Small Business Profiles of the States and Territories 2/2015.