What You Need To Know About Small Business Finance - 7 Reports You Need to Stay On Top of, in Order to Succeed!
Kim Peterson, CEO CommonSenseHealth.org
Practicing sound financial practices are essential to your business. Thankfully there are numerous resources out there to help you stay on top of your books and cash flow.
I remember an exceptionally influential mentor once telling me…
“Kim, I want you to write this down and put it on a sticky note on your desk and refer to it daily.”
“Cash is King!”
“Without cash you have no business.”
The good news is that you don't have to go it alone and it doesn’t have to be incredibly complex to stay on top of. Financial software, like Quickbooks, can help you manage your books, and cash flow while helping you better project future cash needs and determine whether or not you are on track to meet your goals.
Financial statements can be helpful in identifying problem areas, so you can proactively rather than reactively meet your company’s cash requirements.
Here are 7 reports that you should be on top of and some guidance on how often you should check what.
Every two weeks: Bills and cash
Every month: Financial key performance indicators and Accounts Receivable
Every quarter: Trends
Annually: Financial statements
Sales: Keeping a close eye on sales is important. Not meeting goals as well as exceeding them should be traced to responsible factors as quickly as possible. Reacting quickly to increases as well as decreases in sales helps you ascertain why both instances occurred and how to minimise the factors that lead to decreases and maximize those that lead to increases.
Cash Flow Statement: A cash flow statement helps you stay on top of how much money came in and went through the business during a certain period of time. When your operating cash inflow exceeds your cash outflow, this is a sign that you’re operating in the black. If the reverse is true, it’s time to take a closer look at your income and expenses.
Payables: Create a weekly payables list that includes outstanding/current/upcoming payables by due date, amount, check number and vendor. This simple process will make life much easier in terms of organizing and understanding upcoming and past due expenses.
Balance Sheet: This is a document that lists your company's assets and liabilities, from the time you started your business. Reviewing your balance sheet gives you a quick handle on the financial strength of your business.
Income Statement: Also known as the profit and loss statement, or P&L, or statement of operations, this document lists your company's income, minus your company's expenses during a specific period of time (quarterly, every six months or yearly). Knowing your company’s profit and loss over time allows you to project earnings enabling you to make realistic plans for the short and long term.
Gross Margin: Also called gross profit. This is how much money you have left after you have subtracted the direct costs from the selling price of your product or service. The higher your margin the better, as you need to have enough cash left over to pay your indirect costs or overhead (salaries, rent, advertising, telephone, utilities etc.) and still make money. If you have a low margin, then you need to reflect on how much you are charging for your product or service...you may not be charging enough.
Net Income: Also commonly referred to as net profit, net earnings, current earnings or the bottom line. This number is achieved by subtracting all the expenses in your business, including taxes, from your revenue. This number is critical in that it reveals how much money is left after factoring in business operations costs. Net profit, like Cash Flow, is a good indicator of whether you're earning or losing money.
For additional resources...
The SBA offers great tools and resources on how to get and stay on top of your small business finances.
When you practice proactive financial oversight, you have information and assurance that flying by the seat of your pants does not provide. You are honoring the money coming to you by respecting and caring for it. You will also sleep better at night knowing that there are no cash guzzling surprises around the corner. You are on top of it!
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