How do you track your business finances?
Are you one to look at your bank account every few days to ensure that you have cash on hand, or are you working with a proactive bookkeeping team that consistently keeps you aware of new insights as they come?
As a business owner, it's easy to feel tempted to overlook the financial side of your business.
Unfortunately, many business owners don't look at their finances at all. They prefer to live in the comfort of not knowing for fear of what might come out if they look closely.
After all, numbers can be confusing, and you may prefer to focus on the more creative aspects of your business. Perhaps you feel confident in your ability to sell your product or service but don't feel as equipped to understand your business's financial state.
Regardless of the position you're coming from, understanding and reviewing your financial information is crucial to the success of your business.
Below, we'll discuss why it's essential to review your financial statements at least once a month. These statements are things like your Profit and Loss and Balance Sheet. These financial statements hold information that tells the story of your business. Your financial story.
Financial Information Tells a Story.
Financial information is like a roadmap that documents the journey of your business.
When organized correctly, your financial information shows you where you've been, where you are today, and where you're headed.
Putting together your financial data can take a substantial amount of work! You need an accounting system that allows you to quickly identify and track the progress of your business toward your goals. This requires excellent bookkeeping, introducing automation technology, and a vision for the system your business needs.
Once you've put together this kind of financial operating system, you can understand your financial story by reading your financial statements, like a profit and loss, a balance sheet, and a statement of cash flows.
Using these statements, you can see how your business is performing. You can identify areas where you're making money and where you need to make changes.
For example, if your profit and loss statement shows that your expenses are higher than your revenue every month, it may be time to re-evaluate your costs or consider increasing your prices.
Alternatively, if your balance sheet shows that you have a lot of debt, you may need to devise a plan to pay off that debt or renegotiate the terms of your loans.
Review Your Financial Story Every Month
Understanding your financial information and the roadmap within it can help you more intimately understand the direction of your business so far. Reviewing this financial information regularly is crucial to the success of your business.
Many business owners feel a sense of fear when trying to understand their finances. They worry about what might come up if they dig into their financials deeply.
That doesn't have to be the case.
When you leverage an excellent accounting system to tell your small business's story and understand your performance, you unlock a level of decision-making that brings confidence and clarity to your business.
The past has already happened. Nothing can change what's already happened in your business, but understanding what's happened in the past can help equip you for the future.
By reviewing your financial information at least once a month, you can stay on top of your cash flow, monitor your expenses, and make informed decisions about the direction of your business.
For example, if you notice that your cash flow is tight, you may need to focus on collecting outstanding payments or adjusting your payment terms. On the other hand, if you have excess cash, you may consider investing in your business or paying down debt.
When your business's revenue shrinks, or you face a downturn, keeping a keen eye on your financial information is essential to guide your business well.
In times of growth, it's essential to know what's fueling the revenue you're bringing in, something that's evident in your financial information.
In either case, working to understand and evaluate why your business has performed as it has in the past can help you make far better decisions as you approach the future. By reviewing your financial information regularly, you can catch any potential issues early and take action to prevent them from becoming more significant problems down the line.
Work with an Advisor or Coach
Not every business owner can create, maintain, and interpret their financial information.
You're busy enough running and maintaining your small business as it is! Your time is consumed with growing, selling, hiring, and operating your business.
When you work with the right team to review your financial information, you free up your own time and receive the expertise of an independent third party with a fresh perspective.
While reviewing your financial information is essential, it can be challenging to be objective regarding your business. You're emotionally invested in your business and may not always see things objectively. This is where a third party can be unbelievably valuable.
Whether it's a coach or an advisor, your business can only benefit from allowing others to dig through your finances with you.
A financial advisor or accountant can provide an unbiased opinion on your financial information and offer advice on improving your company's performance. They can help you understand the story your financials are telling and provide insight into areas where you may need to make changes.
Working with the right team can help you unlock a new chapter of growth in your business that would have otherwise been out of reach.
Reviewing your financial information is an essential part of running a successful business.
Things like your balance sheet and profit and loss tell the story of your business and provide valuable insight into your financial performance. By reviewing your financials regularly, you can catch potential issues early and take action to prevent them from becoming more significant problems down the line.
You need an excellent system to capture the most helpful information in your business, and you need the help of the right team to interpret it.
Seeking the advice of a third-party advisor can provide an unbiased perspective and help you make informed decisions about the direction of your business.
Don't overlook the importance of your financial information; take the time to review it regularly and watch your business thrive.
Amarlo's financial coaches help small business owners like you build accounting systems that tell a straightforward financial story, unlocking game-changing growth, confident decision-making, and clarity about the future ahead of you.
Let's unlock your financial story today!