This is the second article in our series on how to master the 4 critical areas of your business, to ensure your business can grow and make a good profit. It’s critical to ensure that you don’t have a weak link in your 4 areas, as a business can only grow as strong as its weakest link.
This week we are talking Finance. (You can read last weeks article on leadership HERE)
To master the finances of your business there are 3 things you’ll need to do
Know and understand the following key elements of your financial reports & statements
Your Profit and Loss (P&L) and your Balance Sheet are your best friends in business – embrace them and you won’t go wrong. To put it simply, your P&L summarises your revenue, cost of goods and expenses, and tells you whether you are making a profit. Tracking your P&L will tell you whether you need to make any adjustments to your cost of goods or expenses to ensure your business will be profitable.
Your balance sheet shows your assets and liabilities at any point in time and therefore how much equity you have in the business – which is how healthy the business is. Equity is important in showing the value of your business and can also be used to finance expansion without taking on debt.
Understand what those numbers mean and what impact they have on your business
- Understanding these numbers in your P&L, Balance sheet and your Cash position will allow you to work out important calculations, such as:
- What your break even point is (and what it takes to reach it?). Your break even point represents the sales amount—in either unit (quantity) or revenue (sales) terms—that is required to cover total costs. This is a critical calculation to understand as you have to stay above breakeven to stay in business.
- what are your biggest expenses (and what is your expense ratio across the different areas of your business).
- what are your highest and lowest margin products (what are the biggest sellers and where should your focus be).
- Most importantly, they will tell you how your cash flow is looking, which is one of the most critical factors in running a business, and what your cash gap is. You can read more about cash flow and profit in this article HERE.
Be tracking these numbers during the month / financial period, not after it’s over.
There is no point finding out at the end of the year that you didn’t make a profit… a business MUST make a profit to be viable, end of story. It makes sense to set a budget to make a profit and track it closely to ensure you’re hitting the targets. And if you’re not, then adjust along the way to fix things. Part of Business Mastery is ensuring that you have ongoing control of your numbers throughout each month and year.
If you would like to gain control of your business once and for all, join our upcoming Business Mastery workshop, where you can join likeminded business owners and internationally acclaimed coach Keith Collins for an inspirational morning of learning and networking. We reserve a number of seats for our blog subscribers, use code GuestSeat to book your seat. First in first served!
You’ll find having an Action Centre business coach is just like having a marketing manager, sales team leader, trainer and recruitment specialist - wrapped in one - all for one nominal investment. We are the business partner you need without sharing your profits - with over 60 years of collective coaching experience to keep you on track and accountable for your own success.
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