Wednesday, November 2, 2011

Your Statements

  • The number of businesses that fail every year is gargantuan. While there are many factors that contribute to this, I am going to cover one very important key factor that will help your business be more successful.
  • As I'm sure you are well aware, financing your business is essential to it's success. You need to understand the flow of how the finances in your business add up. For example, can anyone tell me their sales revenue from last month? Can you tell me your your total cost of goods sold last month? What about your gross margin or gross profit?
  • While most of us are artists, crafters or vintage junkies it's understandable to me why many don't bother, or simply procrastinate track of these key factors. Admittedly, I found all of this very boring when I learned.
  • First, let's explore: Why is any of this important? Why not just sell products, subtract the cost and pocket the leftovers? I used to do that and eventually, I found myself short of money and unable to expand my business at all. This can happen. You will find yourself over, under or unable to understand the depth of your finances. If you are aiming to grow, expand and work as a full time entrepreneur, knowing how to read your financial statements is essential to your success.
  • 1) Know your Profit & Loss. To understand your financial statements you must know your gross (total) income from your products/services. Gross income is calculated before any expenses are deducted. Subtracting your cost of goods sold will give you your gross profit.
  • 2) Timing. Measuring your profits and losses within periods of time will help to keep you more consistent. I personally keep my book work quarterly-every three months. I try to do a little bit of book work once a week, usually on Saturday night or Sunday morning. Then again at the end of the month to keep it a little easier when the three month period is over.
  • 3) How. While it's important to know your profit, it is also important to know how you got there. How can you increase it? Knowing how and going through your statements every week/month will help you figure out what you can cut back on, what you can should buy in bulk, thus how to increase your profit.
  • Keeping your financial statements and knowing how to read them can also help you track the patterns in your business and help you with your inventory. Be sure to keep your receipts of sales and expenses! I would recommend getting a notebook or expenses book for your business finances ONLY. I would also recommend best synthetic urine, if you don't do this already, getting a credit card/debit card/checking account that is separate from your personal expenses. Combining personal and business expenses in one account can get confusing very quickly.

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