What was your favorite subject in school?
Summer is over and the kids are back to school. As I write this, it’s one of those amazing fall days in the Midwest where the sky is blue, the mornings are cool and the sunshine promises an extension of summer.
This weekend I had the chance to spend time with a few kids which is always fun -- for a few hours at most! I forget how much energy kids have. They bounce from one thing to another and are easily distracted.
And they are all so different.
Just like business owners.
Energy and passion to run the business. Moving from one thing to another throughout the day and distractions taking focus from the thing you should be doing.
And we're all different. You probably started your business because you were better at something than others and you saw an opportunity.
It's likely accounting and finances were not the reason you started your company -- unless you’re a bookkeeper or accountant.
But money and supporting yourself and your family is why you are in business. Knowing how much money you company has is your responsibility.
Let's get back to basics and take the first steps to understanding your finances is knowing what you're tracking.
To start, all you need to know is how much money comes in and how much you spend every month.
The money coming in is called revenue or sales.
The money going out are your expenses.
The money left over is profit or loss.
Track revenue and expenses and you can easily see if the company is making money or losing money.
So why don’t more business owners track finances? I think some don’t know where to start, some are scared, and some just don’t want to.
If you don’t know where to start or are scared of what you might find, I suggest keeping it really simple. Track your revenue for each day and track your expenses for each day using this tracking spreadsheet.
- Calculate your daily revenue. This number will come from the software you use, any payments you receive, deposits you make, etc. If you’re just starting to track your sales, this exercise will help you understand all the different ways you get paid.
- Calculate your daily expenses. You will get your expenses from anything you pay for. You might pay with cash, check, or credit card. Your business may have automated expenses as well so you’ll need to look at your online banking statement to find what was charged that day.
The spreadsheet will calculate your profit or loss for the day.
Doing this will help create the habit of tracking and you’ll have a good idea if you need to grow revenue and cut expenses. Once you know your total revenue and expenses, you can start digging deeper by breaking out your sales categories and understanding your expenses.
Getting back to the basics will help you reevaluate your business.
If you’re a business owner who just doesn’t want to know about finances, hire a bookkeeper who is willing to do all your tracking and hire an accountant who will be honest with you about the financial stability of your company.