Looking at a Profit and Loss Sheet can strike fear into the most ambitious business owner. It can also be a source of great anxiety if you are not sure of exactly what you are looking at.
Many business owners use the ‘what I don’t know won’t hurt me’ approach to the numbers. This couldn’t be further from the truth, the numbers will hurt you very deeply if you don’t have your head firmly wrapped around them.
The following 3 steps will set you on a path based on knowledge and not fear:
1. Understand your current position
You will need to get out all of the financial papers you have been hoarding in the bottom draw and take a look. What’s in the bank accounts? What are your monthly expenses and overheads? What are the input costs for all of you products and/or services?
The key points to understand here are what do you have, what is coming in and what is going out on a weekly, monthly and annual basis.
2. Create a Budget
Now that you know your actual current financial position; you can set some financial goals for your business. This is when a spreadsheet will come in very handy. You can download my Simple Budget Planner here.
By creating a budget you will be able to see very clearly how much you need to make to cover you costs and what you need to make to stay in the black.
3. Know your percentages
Finally, understand your percentages. This will enable you to stick to your budget and work out where costs are too high or margins are too low.
If you are unsure of yourself, then ask your accountant or pay for some training. Great advice is priceless.