Know Your Numbers
Are these hard times for businesses or a good time to be a better business? The fundamentals of running a successful business haven’t changed – you need to know your numbers!
HOBBY = hope for a financial return. BUSINESS = plan for a financial return
Two things are certain in your business: last month's P&L; and today's Balance Sheet. These show your current position. Ahead of you are the unknown challenges and rewards.
A well-structured General Ledger is the foundation of a successful business. Reporting, forecasting and planning rely on a strong base of comprehensive data which can only be found in the engine room of your business.
Is your Profit and Loss Statement in alphabetical order? If so then it’s not giving you the management information you need. Expenses should be grouped accordingly, to show your big cost centres. $1 saved in expenses goes straight to your cash flow. In a 10% net profit business, that dollar is equal to increasing sales by $10… nice odds
A well-structured P&L is one of your sharpest business tools. Ensure that your variable costs and fixed costs live in their right places on the sheet.
Do you know your monthly break-even? Exceeding your break-even will give you the confidence that comes with the knowledge of sustainability. Note: As the principal, your breakeven MUST include your wages. Calculating your break-even from a well-structured P&L is easy and extremely useful.
One number lets you sleep at night! This magic number is this month’s sales forecast. Are you tracking well? If so your budget and all your plans for the rest of the year are on track and attainable. Those expenses you forecast i.e. website update, media campaign, new employee hire, capital equipment upgrade are still on track. Stay focussed, go hard! Your forecast tells YOU what you can do. Meet with yourself often. Adjust the numbers. Work on the shortfalls. They are invaluable intelligence. Celebrate the wins.
Turnover is vanity... whilst profit is sanity
The Science of Business is the P&L and the Balance Sheet... The Art is interpreting them.
Craig Doyle, Manager SSHED (Sutherland Shire Hub for Economic Development)