Bookkeeping Today, Decisions Tomorrow
You may be spending a lot of time focusing on marketing or sales to grow your business. But analyzing your financial information is another important way to gain insight into your business and set future goals.
What the Numbers Can Tell You
- Your profit and loss (P&L) statement, or income statement, is sort of like a report card. It presents your financial results 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 what areas bring in the most money. You can use this information to make changes in areas that are not helping the business.
For example, if you own a restaurant and notice your food costs are higher than they were before, try to reduce that cost by making sure your staff is trained to use a standard portion for every ingredient put on a plate. Or, think of substitutions that will be more affordable, without detracting from the appeal of the dish.
This will help you control costs while making sure every menu item is consistent.
- Your balance sheet summarizes key financial information on a given date (unlike the P&L statement, which shows profitability over a period of time). It is a good indicator of company stability and liquidity.
The components of the balance sheet are:
- liabilities and
- owner’s equity.
With the balance sheet, you can see how effectively you are managing your assets and turning them into cash. If something isn’t making you money, you may need to reconsider its place in your business.
- Your cash flow statement reports money going in and out 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.
You 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 smart business decisions.
It is very important to learn what your financial statements mean and how they affect your business.
If you don’t have time for bookkeeping, outsource it! It’s too important a measure of your success to let slide.
At BookWerksTM , we not only do your bookkeeping, but we help you use your financial reports to make growth-oriented decisions. Quarterly, we sit down with each client to review their P&L, balance sheet and cash flow statement.