I know talking numbers isn't everyone's favorite conversation however they can actually be extremely interesting and really help your business grow. Through review and analysis numbers can be used to find weak and strong points of business to give entrepreneurs the ammunition and direction on how to run their business.
I often see that the data of the numbers of how a business is running is either not reviewed at all or looked at when the accountant delivers them sometimes 11 months after that information is relevant. We live in a time when information is constantly at our fingertips and up to date financials are one of those things. Through cloud systems such as QuickBooks Online(my favorite) we are able to review information each day. The best amount of time to review is one month, the minimum should be quarterly. By being in real time you can make quick decisions which can alter the trajectory of your business to reach your goals quicker.
Writing down financial records or adding transactions to hopefully match up to try and reconcile a bank-feed are a thing of the past. Not only are they slow they are often inaccurate. Every SME (depending on complexity) should have a cloud software solution which can be kept safely but also empowers the ability of access from anywhere and identify issues quicker before they become a problem.
3. What do they actually mean?
Having the information is one thing, understanding it is another. For a basic start you want to understand what a profit and loss actually is, how it is broken down and what a balance sheet is. Understanding of this information is vital to success otherwise you are flying blind. A profit and loss will help you understand your income and expenses and a balance sheet is a snapshot of your business's financial position at an exact point in time. Once you get the basics down you can start to expand on many things such as cash-flow, budgeting, product turn cycle, liquidity, debt to equity etc, etc.
Comparison of both yourself and to peers is a fantastic measure of how your business is doing.
Firstly you want to review how your business is doing compared month to month, quarter to quarter and year to year. The reason for this is we are looking for growth, discrepancies and seasonal adjustments.
Secondly reviewing your business compared to your peers is a great way to understand costings and creating bench-marking for where they should be. You may realise you are not making effective profit on products, staff costs are too high, ineffective use of rented space or other weaknesses overall in your business that you can capitalise on.
The most important part is to remember to set reminders to review your financials and compare what you expected to where you ended up and why. Constant analysis creates accountability which particularly in small business often gets missed due to the fact you are your own boss. Taking the time out to review your financials can provide a lot of clarity about how your business has been doing and take away the guess work. Its one thing to be busy, its another to be effectively profitable making the business use of your time and resources