Running your own business can be overwhelming, especially if you are a team of one.
We wear so many hats as entrepreneurs that it’s really easy to fall behind with some of the more time-consuming duties.
One of the tasks that can be particularly hard to stay on top of is your bookkeeping. Not only can it be time-consuming, but it can also be one of those painful tasks that you either may not know how to do, or you just really despise (as many entrepreneurs do!).
While bookkeeping and creating financial reports may be a tough part of your business to maintain, it is critically important to the success of your company.
Having accurate financial reports for your business each month make you a more savvy business owner, providing you with the tools to make good decisions.
Those decisions will ultimately make your business more successful and will make you more money. And we are in business to make money, right?
So the first step is getting those accurate financial statements created each month if you aren’t already. You can do this by using a small business accounting software like QuickBooks, or as I recommend, outsourcing this task to an outside bookkeeper, which will free you up for more revenue-generating activities.
Whichever path you choose, you need those financial reports each month one way or the other.
So which financial reports do you need?
There are several reports you need to have on a regular basis, but the main report you need to review each month, and the one I’m going to focus on now is your profit & loss statement, or income statement.
To be the savviest business owner on the block, you need to pay attention to your bottom line each month. Your profit & loss report will tell you your bottom line in the form of a net income or net loss.
This may seem obvious, but you’d be surprised how many entrepreneurs have no idea what their bottom line is because they don’t have the profit & loss report that paints this picture.
The profit & loss statement subtracts all of your expenses from your revenue and tells you if you’re making money or not. What is your bottom line? If it’s not what you’d like it to be, then it’s time to look at 3 things that will give it a boost and help you make more money.
If your business is fairly established and you have sales, but you’re not making a profit each month, then take a look at your pricing. You may not be pricing your products or services appropriately.
If you sell products, be sure and look at all the costs that go into making and selling that product. Don’t forget to factor in things like shipping of materials from the factory, commissions to sales reps and a decent markup for overhead.
If you’re selling a product that you just can’t price high enough to cover your costs, then it’s time to retire it and replace it with another product that CAN be profitable. Don’t get attached to something that is sinking your ship.
If you offer a service, you may be underpricing yourself. It’s a common mistake us women entrepreneurs make quite often. Always keep in mind the unique value you bring to your clients. Whatever your current prices are, raise them. And raise them yearly at the very least.
If you’re not producing a profit & loss for your business each month, how do you know if your expenses are exceeding your income? You don’t, which is why it’s important to review this every month.
Having a list of your expenses by category in front of you will paint a picture of where your money is going. Did your cell phone go up by 50%? Are your shipping costs through the roof? Are you paying too much for merchant fees?
The only way to know this is to look at your expenses every month and monitor the categories and compare them to previous months.
A couple of tips to save you some money include:
- Calling your cell phone provider and reviewing your services. Are you using that huge data plan or all of those minutes? Find areas to cut if you aren’t using them.
- If you have a merchant account, get a couple of quotes from other merchant service providers. You might be surprised.
- Is your shipping supplies cost through the roof? Could the boxes you buy to ship your handmade accessory be changed to a padded envelope saving you hundreds or thousands of dollars? Be creative. Look outside the “box” (sorry, had to say it!).
The third thing you should be looking at on your reports is trends. Look for trends in your revenue and expenses over several months or even several years.
Is your business seasonal? Do sales go up in December? Is March typically a slow month?
By knowing these trends, you can plan ahead to maximize opportunities. If March is a slow month, then plan a big huge sale or promotion during that month to bring up sales. If sales are sluggish in August, have a “back to school” event.
Get creative. But you need to know what the trends are in order to navigate them.
Be Aware. Be Savvy.
Bottom line? Know your bottom line. Awareness of your business’s financial picture is crucial to running a successful business, making more money, and being a savvy entrepreneur.
Susan K. Osborne is a virtual bookkeeper and bookkeeping consultant for creative small business owners. Her passion is helping entrepreneurs with the often painstaking and time-consuming task of bookkeeping so they can run their business successfully. Explore Susan’s services and DIY bookkeeping program at: http://www.susankosborne.com.