How do I read the financial numbers? What should I be doing with my finances to get better control of the business?
Let’s Talk About Financial Numbers (and Why They Matter)
Let’s be real—many small business owners feel overwhelmed by financial reports. They’re filled with numbers that can seem abstract and confusing. But here’s the truth: those numbers are the story of your business. They’re telling you where you’ve been, where you’re struggling, and where you could go next.
When you understand your financial numbers, you gain control. You stop reacting to what’s happening day-to-day and start planning for the future with confidence. Let’s break it down together.
Struggling to make sense of your financial numbers? Let us guide you. Schedule a Free Financial Assessment.
Step 1: Understand What Your Financial Numbers Are Saying
If you’ve ever thought, “I don’t even know what I’m looking at,” you’re not alone. Financial statements can feel intimidating, but they’re actually tools that empower you to make better decisions.
The Three Financial Reports You Need to Know
- Profit & Loss Statement (P&L):
This shows your income, expenses, and profits. It’s the starting point for understanding whether your business is truly profitable. - Balance Sheet:
This lists your assets, liabilities, and equity, giving you a snapshot of your business’s financial health at any moment. - Cash Flow Statement:
This tracks the money coming in and going out of your business. It’s key to avoiding the dreaded “running out of cash” scenario.
💡 Pro Tip: If your financial reports aren’t making sense, start with your accountant or bookkeeper. Ask them to walk you through the basics—it’s worth the time.💡
Recommended Blog: Read Why Cash Flow is the Lifeline of Your Business to learn how to manage cash effectively.
Step 2: Clean Up Your Books (Yes, It’s Time)
If your books aren’t accurate, it’s like trying to drive while looking through a dirty windshield. You’re guessing instead of making informed decisions. Trust me, this is a fixable problem.
Action Steps to Clean Up Your Books:
- Reconcile Accounts: Match up your records with bank statements to catch errors or discrepancies.
- Set Up Proper Categories: Ensure expenses and income are categorized consistently so your reports make sense.
- Get Help if Needed: Sometimes hiring a professional to reset your books is the quickest and most effective solution.
💡 Pro Tip: Tools like QuickBooks make it easier to keep things organized and generate accurate reports on demand.
Step 3: Shift Your Focus from Taxes to Growth
Most small businesses use accounting systems designed for tax purposes. That’s fine for filing with the IRS, but it doesn’t help you run your business day-to-day.
You need managerial accounting, which focuses on helping you make decisions that drive growth.
Managerial Accounting in Action:
- Revenue Forecasts: Predict how much you’ll earn over the next quarter or year.
- Expense Budgets: Plan how much you’ll spend to keep things running smoothly.
- Profit Goals: Decide how much profit you need to make the business worthwhile.
💡 Pro Tip: Shifting your focus from past results to future planning will help you feel more in control of your business.
Step 4: Use Financial Numbers to Plan Your Next Move
Your numbers aren’t just about what happened—they’re clues to what could happen. Analyzing past results can help you identify trends, avoid pitfalls, and capitalize on opportunities.
How to Plan for Revenue:
- Review Customer Trends: Who are your most profitable clients? Which ones are plateauing or declining?
- Set Revenue Targets: Use what you’ve learned to set realistic but ambitious sales goals.
How to Plan for Expenses:
- Review Spending Patterns: Where are you overspending? Where could you invest more for better results?
- Evaluate Vendor Contracts: Could renegotiating terms save you money?
- Outsource or In-House: Decide which services are worth doing internally and which are better handled by experts.
💡 Pro Tip: The best plans aren’t just about cutting costs—they’re about aligning your spending with your growth goals.
Turn your financial numbers into actionable insights. Get Started With Strategy Leaders.
Step 5: Stay on Track All Year
Planning is only the first step. To truly take control, you need to monitor your progress regularly. This isn’t about micromanaging—it’s about staying informed and making adjustments before small issues become big problems.
Best Practices for Monitoring Your Numbers:
- Weekly or Monthly Reviews: Regular check-ins keep you aligned with your goals.
- Track Key Metrics: Revenue, expenses, cash flow, and profit margins are your big four.
- Compare Year-over-Year: This helps you identify seasonal trends and long-term growth opportunities.
💡 Pro Tip: Use Excel or your accounting software to create visual dashboards. Graphs and charts make it easier to see patterns at a glance.
Step 6: Automate and Simplify
You don’t need to spend hours every week poring over spreadsheets. Automation tools can handle the heavy lifting, freeing you up to focus on strategy.
Automation Tools to Consider:
- Invoicing: Automatically send and follow up on invoices.
- Expense Tracking: Use apps to categorize and monitor spending in real-time.
- Alerts: Set up reminders for critical financial tasks, like paying vendors or reconciling accounts.
💡 Pro Tip: Investing in the right tools pays off by saving you time and reducing human error.
Final Thoughts: Take Control of Your Finances
Your financial numbers aren’t just reports—they’re the key to understanding and controlling your business. By cleaning up your books, planning for the future, and staying on top of your results, you’ll set yourself up for sustainable growth.
And remember, you don’t have to do it alone. Getting help from financial experts or using tools like QuickBooks can make a world of difference.
Ready to gain control of your finances? Let Strategy Leaders help you turn your numbers into actionable insights. Contact Us Today.
