If you are a typical business owner, you complain mightily about email, but you completely ignore your accounting, hoping it will go away if you don’t think about it. Like Rodney Dangerfield, it just gets No Respect!
Look, you don’t need to do the accounting; your job as business owner/CEO of your business is to make sure it gets done. But there is more to it than handing it off – you do need to review the reports on a monthly basis. Why? Because the reports tell you if you are making money, and what brings in the most profit. They can provide an early warning that an area of your business is in trouble, giving you the chance to make changes before you begin hemorrhaging money.
I have many clients who hire a bookkeeper and never look at the reports – and have no idea the bookkeeper may not be producing reports that give you the info you need to make the decisions that will make you more money. Start by sitting down with your bookkeeper monthly, and asking them to walk you through the reports. If the information is not clear to you, or too difficult to see easily, ask for it to be provided in a different way – you are the boss, after all. The goal is an easily scanned report that will give you the key data you need without taking a lot of your time. At a minimum, you should be able to answer five questions:
- How much do you need to make each month to break-even? [This should include your salary]
- What percentage of your net income is provided by each product or service you offer?
- Who are your top grossing clients or customers? [Important not only so you can thank them, but also to minimize risk – if one client provides 80% of your income and you lost that customer, your business would probably fail]
- How much money do your customers owe you? How long do they take to pay you? Are any payments overdue?
- If you have inventory, what is the cost of your inventory? What is its average turnover time?
Your call to action is to calendar a monthly time to review your financials.
By the way, did you know that another comedian, Bob Newhart, was an accountant before he got his break in comedy? He didn’t like accounting either, but I’ll bet he reads his P&L report regularly!
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