Running a business is one of the most challenging experiences one could ever experience. You worked so hard to build your business. You spent nights and days fighting for your dream. Now that it is a reality (you own your own business), you can proudly claim “I am an entrepreneur!”
As an entrepreneur myself, born and raised in a family of entrepreneurs, I know that starting your own business is not just a job. Therefore, it is a status that follows you 24 hours per day, seven days per week.
Numbers: The Least Attention
You have an endless number of tasks. You produce your product or perform your service, manage your clients and your suppliers, handle employees, promote your business, and of course, you must know your “numbers”.
To be more specific, the “numbers” you need to know are the ones shown in your financial reports. To name a few: financial statements, break-even analysis, cost analysis for your products, financial projections…the list goes on and on.
Usually, business owners focus on their products, on their orders, on reaching new clients, and at the end of the day, they do not have time to look into financial reports. Others do not have the right skills or knowledge to understand their “numbers”, or maybe they do not have the right accounting system. Then, let’s be honest, accounting and financial reports are not the most exciting thing for an entrepreneur.
Informed Business Owners
Informed business owners, with a complete understanding of the numbers that drive their business, are the most successful.
Why are your “numbers” so important? Because they represent your economic and financial situation. Numbers show your current earnings to-date and costs incurred from investors. The most important numbers tell your long term progress. They tell you about your perspectives and ways to prevent issues in the future.
Underestimating or failing to know your financial reports is the worst mistake an entrepreneur can make.
For example, if your financial statement shows a net profit, it means that what you earned exceeds your spending during that period. However, is it enough to say that your business is healthy and growing? Unfortunately not. You must know how your business generated that profit. If your business generated a profit that was not a repeatable action, then you most likely will not see that same profit next year. Your most prudent action is looking at the long-term health of your client portfolio.
On the other hand, a loss may not mean a disaster. In some situations, a loss is normal. Many new companies endure start-up costs and close their first period with a loss. A loss could also be understandable and reasonable for companies who launch new products or restructure their production.
Likewise, let’s say you have a good number of clients and a satisfying number of orders, but you are experiencing problems with the liquidity to honor your debts. Why? Probably, your financial reports could tell you that the payment terms you grant to your customer do not fit the terms your supplier requests from you.
You glean this information only by studying and understanding your financial reports. Above all, you must compare and contrast the information provided in each report.
A Good Small Business Owner
A smart business owner maintains a good knowledge of their profit and loss statement and knows each source of income and the production cost of each product. Consequently, this base line information falls far short of being thorough enough.
I advise entrepreneurs to know their balance sheets and to understand their financial position. It is also valuable to know whether or not your assets are financed through the correct sources. You must manage a clear picture of your cash flow. The quote “cash is king” is very often true. A business with the proper balance of cash and credit is optimum for the long haul.
Make a plan, set your goals, and find a reliable way to measure your progress. This can be done with good financial projections. Asses your goals and your achievements frequently. As a result, you understand your growth or adjust your plans accordingly.
Best Business Practices
As a “one man show”, an entrepreneur or independent business owner, you are the only one with a complete vision and understanding of your business. You are also the only one who can make hard decisions about your future success. I highly suggest working with a good accountant to help you set both the short term and the long-term goals for your business. If you have a proactive, strategic professional at your side, you can focus on growing your business.
The key to running your business smoothly, is to see your financial reports as a tool to grow your business and to achieve the success you deserve. Remember, knowing your “numbers” is the number one way to know your past mistakes and solve them for the future. A clear view and a strategic plan is the prudent approach for a long-term success. I love being an entrepreneur and know that you do, too.
Owner - Succentrix Business Advisors
In 2016, Gloria and her husband moved to Wichita Falls,TX with the air force. Gloria opened her office of Succentrix Business Advisors in order to continue the pursuit of her dream of serving entrepreneurs and independent business owners. Gloria is comfortable with anyone and everyone she meets. Globally, corporations and individuals alike are interested in cost controls, methodology and reporting implementation. Math is a universal language. If you and your small business want to improve what you are currently doing or if you want to take what you are doing to the next level, Gloria is the business advisor you seek.
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