It’s that time of year – the end of the calendar year and for most the end of the fiscal year. For many businesses, when it comes to their financial statements, it’s the time of year spent reviewing their “numbers”.
In fact, it’s likely that small to medium sized business owners spend more time looking at their financials between Christmas and New Year’s, than any other time of the year. Why? Because it tends to be a slow time of the year (unless you’re in retail), it’s planning time for next year, and everyone is anxious to see how their year ended, even if everything isn’t entered yet.
However, if you’re like most business owners, you probably didn’t get into business to spend all day looking at financials. You got into business to deliver your product or service. The financials are just a by-product and your accountant pulls information off them to keep Uncle Sam happy. Sound familiar? You are not alone – most business owners have a real fear for numbers! You know they’re important, even if they’re sometimes baffling, but it’s likely you aren’t really learning what you need to from those numbers…!
The basics are important…but you need to go deeper than just the accounting reports or the tax impacts that your accountant is looking at. This year, as you look at your Balance Sheet, Profit & Loss, and Income Statements, try focusing on questions like these:
- Did I really make any progress this year? (How do I know?)
- Why do I have less cash in the bank but my sales increased?
- What areas of my business generated the most revenue? The most profit?
- Is my spending in line with other companies that provide similar products and services? (If you’re not sure…we have a really cool financial benchmarking tool that can help you figure that out – call us!)
- Are my employees, department, or staff generating acceptable amounts of revenue for our industry?
- What kind of Return on Investment did I get on my marketing investment this year? What worked the best? What was worst?
The list of potential questions is long and they are all valid and yes, there are answers. Unfortunately instead of buckling down and finding the answers, many business owners get overwhelmed and shift their focus back to delivering their product or service, because after all that is why they got into business in the first place. Right?
If you want your business to succeed long term, don’t fall into that trap. If you don’t understand what the numbers mean, raise your hand and get some help. If you do understand your financials, but you aren’t sure if they mean you’re doing good or bad or you struggle to figure out where the opportunities lay for improvement, get some assistance. A fresh detailed Financial Analysis of a business can be an incredibly enlightening and profitable experience for a business owner. Sometimes a 3rd party can see things that you’re too close to (or help you ask questions you might not have thought about).
Do you know what to look for in your financials? Besides sales and profits, what are the drivers that you scrutinize? Feel free to share your comments below.
Chris Steinlage, Kansas City Business Coach
Photo by MeddyGarnet