I started my career about twenty five years ago, as a Chartered Accountant. I’m not sure why I chose to study Accountancy. I do know that it made my parents happy. And as I look back at that decision, it was a good decision. It gave me a brilliant start to my career. But more than that, I learned how to read and interpret numbers. A skill that has served me well in business and life.
Business is about making money and helping people. And understanding your financial performance is a critical step in making money. So if this is not your strongest management area this is where I suggest you begin.
1. REVIEW YOUR PROFIT AND LOSS STATEMENT
This is the report that tells you whether you have made a profit, or not. You need to know how to read your Profit and Loss Statement. Are you making the profits you expect? Are your expenses reasonable? How could you improve profits?
You need to be reviewing your Profit and Loss Statement at least monthly.
2. PREPARE YOUR BUDGET
A budget is a projected monthly Profit and Loss forecast. It details both your expected sales and expenses. You can use your historical performance as a guide for monthly fluctuations in sales.
Your budget should be prepared for the financial year and reviewed every quarter.
3. REVIEW PERFORMANCE AGAINST BUDGET
Every month, review your performance against your budget. Did you reach your goals? Did you make the profit you expected? Was your budget accurate or do you need to make adjustments? There is a saying… “What get’s measured, get’s managed.” By reviewing performance against expectations you can identify what changes you need to make.
Being financially literate is an essential business management skill. Too many businesses fail because the business owner did not know their numbers. Whilst it can seem daunting to learn these skills it may be easier than you think. Who knows you may even fall in love with tracking your numbers. Either way, the sooner you learn these skills, the better. The success of your business depends upon it.
You can do it!
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