You may be spending the majority of your time focusing on marketing or sales to grow your business, however, analyzing your financial information is the best way to gain insight into your business and set future goals. But how can you use the numbers in those financial statements to grow your business?
Your profit and loss (P&L) statement, or income statement, is sort of like a report card. It presents the financial results of a business for a stated period of time and breaks down the revenue generated by your business and the expenses incurred. By analyzing your P&L statement you can see how profitable your business was and see what areas of your business are the most profitable. You can use this information to make changes based on the areas that are not profitable. For example if you notice your food costs are high, try to reduce that cost by making sure your staff is trained to use a standard portion for every ingredient put on a plate, that way you can control cost while making sure your dishes are consistent. Now let’s look at the balance sheet.
Your balance sheet summarizes key financial information on a given date (unlike the P&L statement, which shows profitability over a period of time) and is a good indicator of company stability and liquidity. The components of the balance sheet include assets, liabilities, and owner’s equity. With the balance sheet, you can see how effectively you are managing your assets and turning them into cash. So if something isn’t making you money, you may need to reconsider it’s place in your business. Next is your cash flow statement.
Your cash flow statement reports company inflows and outflows of cash during a period of time and will tell you if you generated or lost cash. The cash flow statement is important in making business decisions because it shows where your business is making money. So you will want to maximize the cash inflows and minimize your cash outflows. Let’s say you see your operating activities are negative because you have too many employees working overtime. If you reduce the amount of overtime, your cash outflows will be smaller in your next cash flow statement.
These are just some of the simple ways you can use the information provided by bookkeeping to help you make business decisions. It is very important to learn what your financial statements mean and how they affect your business. Still don’t have time for bookkeeping? Outsource it! At BookWerk$ we not only do your bookkeeping, but we help you understand and make decisions based on your financials with our quarterly BookWerk$ Brief video. Watch a demo of our BookWerk$ Brief here!