Understanding the financial health of your business can be an extremely overwhelming task to get your head around. Unless you have a passion for figures then it’s an area that can cause a lot of frustration and stress. You may have a handle on your profit and loss statement, but are you able to look deeper and really see how your business is going?
Sometimes it seems like just paying the bills is enough and it’s certainly a good start! But what about your day to day business choices? Could some of them be eating away at your profits?
Most business owners don’t have a background in financial analysis. That’s ok. You can still learn the basics and build on your knowledge as you go. The more you flex your financial muscle, the stronger it will become and the more easily you’ll be able to step back and take in the bigger financial picture of your business.
Master the basics
Whether you do the books yourself or hire someone to keep things in order, you should understand the basics of bookkeeping. Keeping good records will alert you to any cash flow issues and potential legal problems. It also makes tax time a lot easier to manage.
- Revenue and expenses – record every transaction so you know the financial ‘ins and outs’ of your business; where the revenue is coming from and where you’re spending
- Accounts payable/receivable – keep up to date with what you owe and what others owe you.
- Stock/Inventory – maintain records of all inventory including dates purchased, quantities, purchase prices, dates sold and sale prices. This will help with forecasting by tracking trends, prevent stealing and keep your stock holdings to a minimum.
- Payroll – there’s a whole lot to know (and keep record of) when it comes to employees. It’s wise to consult with a professional at the start as you don’t want to be underpaying or overpaying staff, or slapped with a hefty government fine.
Take a holistic look
Once you have the basics mastered you can now start to take in the bigger picture – the holistic view of your business financials. You may be making your revenue goals, but how does your net income look? What proportion of your revenue is going to overheads? Is your gross profit percentage hitting industry averages?
Learn what questions to ask and what metrics are most important for your business. Once you dig deeper, it’ll be quicker to spot issues when they arise as well as finding opportunities to profit. This puts you in a stronger, healthier and more confident position to keep growing your business.
Keep an eye on cash flow
Knowing the basics and taking a holistic view are both great ways to keep track of the overall health of your business. So too does the cash you’re generating on a daily basis. Cash truly is king, that’s why it deserves a separate mention here.
You may be offering an incredible product or amazing service but if the cash isn’t coming in to meet your monthly expenses you’ll head into the red. The further your financials go south, the more difficult it becomes to recover. Without enough income to cover the outgoings is a recipe for disaster. And paying cash now when you’ll need liquid assets later could be the nail in the coffin.
Start by regularly reviewing your existing expenses, how much you need to bring in to cover them and where you can save that valuable cash wherever possible.
Bartercard can help get your financials out of the red and firmly into the black. We have members who are financial professionals and keen to work with you. Our team can also show you where you can save cash on your business expenses. Contact Bartercard to find out how we can get your business to look even healthier and keep it that way!