Is all your hard work paying off? Is there an area in your business that’s actually draining cash? Are you focusing on the right projects and ideas?
Well all of these questions could be answered if you’d just create a budget.
Three Reports That Reveal The Health Of Your Business
Budgeting for entrepreneurs is something that evokes mixed emotions. Often thought to be a “redundant” or “time-consuming” task, hardly any entrepreneur looks at the task favourably.
However, it needn’t be. If you look at the three reports outlined in this blog, you’ll be able to determine with certainty the aforementioned as well as carve a path for growth and business success going forward.
- Profit and Loss Statement
- Balance Sheet, and
- Trial Balance
Before you get started you should ensure you’re not pulling numbers from thin air or creating a “guesstimation.” The numbers you work with need to be accurate. It’s time to dig into your finances and get a hold of your statements, invoices etc.
Profit and Loss Statement:
Exactly what the name suggests, your profit and loss statement will reveal if you’re making a profit or operating at a loss. You may wonder how it’s possible to make a loss and not notice it, but as some businesses rely on credit they may not notice if there are certain areas in their business that are draining costs. This is especially true when entrepreneurs start out or when they expand, taking on new projects.
Creating Your Profit and Loss Statement
Subtract your expenses from your income.
Your expenses will include:
- Payroll (tax, benefits and insurance (this includes your own salary))
- Recurring expenses (debt, rent, utilities, insurance etc)
- Sundry expenses (small expenses that don’t occur often)
Your Income will include:
- Money from sales.
- Money from retainers and ongoing projects.
- Recurring payments for any number of business activities.
A balance sheet will help you determine what your business is worth. Also known as your net worth. This will determine how much assets you’ve acquired as an entrepreneur and how much debt you still have to pay. The rule of thumb to maintaining a positive balance sheet is to pay your debts and acquire appreciating assets (that aren’t financed).
Creating Your Balance Sheet
Subtract your liabilities from your assets.
- Debt (loans, credit repayments, outstanding or overdue accounts)
- Taxes (tax due be paid in the near future)
- Bills (amounts due to suppliers, project managers etc.)
- Property owned by your business
- Equipment and Tools
- Cash and Savings
A trial balance gives you a brief overview of your businesses finances. It’s a one page document that details credit and debits, as well as assets and liabilities to ensure everything checks out and that your accounting is a true reflection of the money coming in and going out.
To create your trial balance simply take into account the aforementioned statements, as well as any forecasts you’ve created. Total these amounts and place in their respective columns.
Now that you have this information at your disposable it’s time to figure out how you’ll use it to your advantage.
If your business finances aren’t in the state you’d like them to be, it’s time to work toward improving them.
If you’re making a profit, you should take this time to evaluate what would reap the best return going forward and how this knowledge will help you reach your business goals.
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