How often are you measuring the performance of your business?
Running regular financial reports; monthly, quarterly and yearly, will keep you on top of your progress and will give you a clear idea of the viability of your business. Are you on track for making a profit? Do you need to make adjustments to compensate for the time of year? Are you bleeding cash in places you weren’t paying attention to?
Don’t assume because you are still working like a dog (and that hasn’t changed in years), that you are consistently bringing in the same revenue and don’t assume that the same revenue as last year will cover all of this year’s expenses.
Your Profit and Loss (P&L) statement will give you an overall view of money in, money out and most P&Ls will be set out the same way:
1) Revenue- This should be broken down by category so that you are able to determine what actions/products are bringing in the most income and where you may be best leaving something behind as the time invested doesn’t produce a great return.
2) Cost of Goods Sold- COGS are the direct costs involved in providing your product or service, for example the wholesale cost of parts that you on-sell at a retail price.
Subtracting #2 from #1 will give you your gross profit for the date range of the report.
3) Operating Expenses- these are all the expenses that go into running your business, but do not ultimately produce a profit. Operating expenses include utilities, rent, office supplies, vehicle expenses, etc. This is the section you will want to go over with a fine-toothed comb when you are trying to save money to boost your cash flow.
By subtracting #3 from your Gross Profit, you will find your Net Profit (or loss)- this is the actual standing of your business.
By consistently reviewing your financial reports, you can start to see trends in your revenue fluctuations, an overall increase in your cost of goods sold and where budget cuts may need to be made.