The SIX ways Financial Info will totally help you make a Healthy Income

Oh look, I know there are WAY more exciting things to do than put together financial information. But you know if you really want to make a Healthy Income from your business, the numbers will help you. True!

So I’m totally NOT here to talk about your tax and legal obligations. While I’m personally very law abiding I’m not really bothered whether you submit your returns and do all that stuff. What I do care about is that you find a way to get decent financial info to help you understand how your business is performing and make good business-y decisions.

Charlie’s story

Here’s a quick story.

A few years ago I met a lady who was selling cookies. Let’s call her Charlie. Charlie was doing OK. She sold her cookies wholesale, online and at markets. She was very busy and seemed to be making a very good number of sales.

When I met Charlie, she was in a tizz because her business had run out of cash. Now you might be wondering how that can happen to a business that’s doing well. But it is possible, and it actually happens more often than you’d think. I’ll pop an explanation in a later blog but basically growing a business rapidly often means you need to buy a lot of inventory (or equipment, or build a new website etc), the upshot of which is that you need to spend cash before you earn it.

Anyhoo, Charlie was trying to raise some money for her business and looking at getting a bank loan or an investor and she asked me if I could help.  She didn’t have any financial info about the business so I asked her to pull together a rough Profit and Loss account. A profit and loss account basically shows what you earned in sales, what you spent on expenses and how much money you made.

Charlie went away and with the help of a nice bookkeeper, got her records together.

About a month later Charlie came to see me again. This time, in shock. Her profit and loss account didn’t look good at all. Although she’d made good sales she’d actually made a massive loss. Her expenses were much bigger than her sales and she was in trouble.

Eek!  What had gone wrong?

Well, amongst other reasons, we discovered that Charlie had been selling her cookies for less than they cost to make. Yup. Let’s just say that again. Charlie was selling the cookies for less than their cost. She was losing money on every cookie sale she made.

So, why did Charlie not realise her business was going so badly?! Shouldn’t she have seen some warning signs?

Well lots of us get ourselves into this pickle! Y’see most of us don’t have very accurate “gut” feelings about how our businesses are performing money-wise. So while we find it easy to ‘see’ sales numbers, getting a sense of the profit on those sales is tricky!

And that’s where profit and loss accounts and balance sheets come in. They tell us stuff in a very unemotional factual way.  They give us info so we can make decisions or do investigations. And they tell us stuff we sometimes don’t want to know! They are not the enemy or a burden. They are useful! OK!

SIX super-helpful questions our Financial Info can answer!

Financial Information can help in all sorts of ways! For example, here are SIX super-useful questions it helps us answer:

1. Am I pricing high enough? Like Charlie, you’d be surprised how many people charge less for their product than it costs them to make and sell. Your numbers will tell you if you’re making this mistake.

2. Am I spending enough? This is a funny thing but sometimes we don’t spend enough! We either do everything ourselves (stuff that could be outsourced like admin) or we don’t do it at all (like, um, marketing). A look through your accounts can highlight where you’re not spending money.

3. Can I justify spending money on a…? Sometimes we simply can’t afford to spend money on a business-y thing, but other times we’re not sure whether we can justify spending money on something. Is it a good idea? Will it make a financial contribution to my business? Where can I save money to make this possible? Financial Info can help with this conundrum.

4. What’s going to happen next? Your financial records tell you what’s happened  but if you look at them regularly and carefully you will be able to spot patterns and learn a little bit about predicting the future!

5. Is it worth the bother? Running a business isn’t easy, is it?! So we need to be rewarded for it. Financially rewarded for it! Our numbers help tell us if we’re making any money.

6. Is my business working? If you watched the Healthy Income Class you might remember my analogy of the juicer. Here’s the quick version:

Imagine you have two juicers a green one and red one. You put four oranges in the green juicer and get out a full glass of juice. You put four oranges in the red juicer and get out just a dribble. The green juicer is working better, yes?

Well, that’s like business. Some businesses are the green juicer. They have good business models. Time and money goes into the juicer and lots of profit comes out. Other business are more like the red juicer. Their business models don’t work well. Time and money goes into the juicer but not a lot comes out.

You need to know if your juicer is red or green and your Financial Info can help you understand this.

PS If you’re reading this and feeling a bit red-juicer-ish, don’t feel bad you can fix it! PPS Healthy Income Program peeps, this is the Business Recipe

So why don’t we keep financial records?

OK, so if financial records are soooooo useful, why don’t more of us keep them properly?

Well it’s because..

1. We don’t know where to start
2. We can’t find the information we need to start
3. We haven’t a good system for storing the info (invoices, receipts etc)
4. We don’t know how to turn the info into a set of accounts
5. We don’t understand the accounts when we DO get them!

So over the next few weeks I thought I’d do a few blog posts helping with some of this stuff. Would you like that? If you want to be notified when there’s a new one on THIS topic (numbers: putting them together, understanding them etc) then pop your details in here and I’ll send them straight to you. Otherwise I will also pop them in the weekly Snacks email which you can get here.

Do I have to keep proper financial records?

Oh look, quite apart from the fact that there are rules about businesses keeping “proper” financial records, I think that good bookkeeping and producing a profit and loss account and a balance sheet ( a ‘set of accounts’) is the best way to keep on top of the financial performance of your business.

Do you need to do it in the ‘formal’ accounting-type way? No, but it seems to work, and  really, why reinvent the wheel? But if you’d rather do stuff your way, then go ahead! Really! Anything is better than nothing! Financial Information for a Healthy Income

MORE!

If you enjoyed this you might like our weekly Snacks! It’s a lovely email newsy thing with bits and bobs to help you make a Healthy Income from your small business. It’s FREE and you can get it here! And if you don’t want to miss a blog post about Numbers and Financial Info we’ll send you a link to each one we publish if you pop your details in here.

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