Smart Money Choice$

As an independent professional or solo entrepreneur, do you know where your business is headed? Is your business stable enough to  successfully navigate the current rocky financial landscape? How has your business changed over the last year, and what needs to be done to assure that it is stronger six months from now?

If your business is your vehicle to prosperity, then the first step in reaching your intended financial destination is knowing where you are right now.

Your business’ financial reports work like the different meters on your car’s dashboard.  They show you how far you’ve come, how fast you’re going, and where you are headed. That is, if you take the time to look at them!

As a bookkeeping consultant, it’s amazing to me that so many small business owners are completely in the dark as to whether or not they are even turning a profit each month. That’s like driving your car on a precarious mountain road at night with your headlights turnd off!

If you feel in the dark when it comes to deciphering your financial reports, you are certainly not alone. But if you want to avoid inadvertently running your business over a cliff, it’s time to turn on the lights of your financial dashboard and take control of where you’re going.

Where Are You Headed?

Two of of your most important financial reports for steering your business successfully through rough terraine are your Profit and Loss Statement (aka Income Statement) and your Balance Sheet.

Your Profit and Loss Statement shows you how much money is coming into your business through sales, and how much is exiting your business through expenses. This report takes a reading over a specific a period of time. The “bottom line” is your profit or loss.

By monitoring where most of your income is coming from, and how much it’s costing you to bring in that money, you’ll be able to see more clearly where your sales efforts are having the most success. Conversely, by examining where your money is going in expenses, you will know where you may be losing precious cash flow unnecessarily.

Set aside time to review your Profit & Loss Statement at least once a month. Then use the numbers to set goals and and implement specific actions that will boost your income and reduce the expenses over the coming month.

The other key financial statement you should be monitoring on a regular basis is your Balance Sheet. This report is generally more of a mystery to small business owners. Yet the information it provides is more comprehensive and often more revealing about the true financial health of your business. It contains indicators that can pinpoint disasters waiting to happen.

Think of your Balance Sheet like a snapshot of your business’ financial stability at any given moment in time. It shows what your business is worth, including everything your business owns, everything it owes, and how much the business is making or losing in the process.

In practical terms, it tells you whether your business could pay off all its debts and still be standing strong, or whether it is actually operating at a loss, even though there may still be money in the bank account. It can predict a major cash flow crunch or even impending failure, if the business doesn’t change direction.

Like photographs taken over a period of time, the real changes are clear to see when comparing several snapshots side by side. Your Balance Sheet can reveal important trends, both favorable and unfavorable, over time. For example, is your equity (or the value of the business) steadily increasing? Or are your assets slowly being drained off just to keep the business afloat? The Balance Sheet gives you these answers.

Schedule time on a monthly basis to take a good look at your financial dashboard. By analyzing your financial reports you put yourself in the driver’s seat of your businses, being able to make timely and strategic decisions to steer your business to deliberate and sustainable success.

RECOMMENDED RESOURCE:

If you use QuickBooks software to keep track of your financial records, or you just want to learn the essential basic principals for understanding financial reports, you’ll want to check out Gabrielle’s new self-paced training program, “QuickBooks Basics: Bookkeeping Essentials” available at: www.BookkeepingDirect.com/essentials

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Gabrielle Fontaine, PB is a freelance Professional Bookkeeper and Certified QuickBooks ProAdvisor. She specializes in assisting Internet-savvy entrepreneurs to get control of their books and maximize profits. Gabrielle also publishes the business-boosting online ezine, Smart Money Choices. Get more information at http://www.BookkeepingDirect.com