Project #2 Learn Your Financials
But I’m Not a Financial Wizard
The good news is that you do not need to be a financial genius in order to run your business but having a good understanding of your numbers will enable you to make better sound decisions. Knowing how financial decisions affect distinct parts of your business differently will make you a stronger businessperson.
Learn Your Financials
Your financials say everything about your business and a smart analyst can easily see what’s not being managed correctly. Take the time to understand your business numbers so you can make informed decisions that lead to a healthier business. Analyze year-after-year financial statements (income, cashflow, balance, etc.) for areas of improvement and build an action plan to ensure things get done.
The Three Minimum Basics
Income Statement: This sheet measures the profitability of your business over a period of time. This will assist your analysis and decision making allowing you to forecast the future with some degree of accuracy. Remember, accounting only documents past events and as a business owner you need to look into that imaginary crystal ball and come to your own conclusions and decisions about the future.
Balance Sheet: This is a statement of business financial position, it is a snapshot that shows what the business owns, its obligations, and roughly its valuation. The downside to this sheet is that it is highly subject to interpretation and revaluation because it is presented with yesterdays costs.
Cash Flow: The two sheets described above usually do not provide adequate information on the timing and amounts of cash flowing from your business. A cash flow statement identifies both incoming and outgoing business cash and cash equivalents. This statement is especially important to small business because cash flow is more important to its short-term survival.
Gather your financials for the last three to five years if possible. If you have less than that, I encourage you to use whatever is available to you. If you only have less than a year, I suggest completing this project with month-over-month data. Just like yesterday’s Project #1, answer all questions in detail on paper as this will become part of your financial plan. Here’s what you should be considering when looking at all those numbers:
· What is the accuracy of my financial statements, and have they been reviewed or audited?
· Do I know what all the current liabilities are of my business?
· Are sales cyclical, what are the trends and how will I balance them over a term?
· How has my company been financed to date, revenues or loans? How are they secured?
· What is my estimated business income for the first year, second, and third years?
· What is my cost of sales breakdowns and how will I manage them?
· Have I ensured there are no personal items in the business financials?
· Is my business in line to provide my personal financial needs?
· In order to make a profit, what sales volume will I need in the first three years?
· What are the businesses total financial needs and what is its breakeven point?
· Have I projected the next three years assets, liabilities, and net worth?
· Did I build a budget with known funding sources and detail how the business will spend it?
Share And Help Others
I hope you can utilize this second of five projects (one-a-day this week). If I can help you or others with even a small business tip, I will feel rewarded. You can’t do everything yourself so don’t be afraid to ask questions on my social media platforms or contact me for extra help. As a consultant, I find a great reward in transferring my knowledge and skills to help others succeed, especially during difficult times. Know that a planned execution on your strategy will be rewarded with results. Make the choice to support your business with solutions that make it even more valuable.
Please "Share" this with others. Vaughn Bonsteel is a Business Consultant and Safety Consultant helping companies and people like you understand their current situations so they can move their businesses towards their goals.