Do you know how to understand your numbers in a meaningful way? Do you understand the terminology? Do you know your break-even point and is there a company budget in place? Every owner should be able to determine the strengths and weaknesses of their finances by reviewing the numbers of their financial statement.
Your financial statement is comprised of 3 separate statements: a balance sheet, an income statement, and the cash flow statement. The key factor to understanding your Financial Statement is to follow a consistent process and system each month in preparing and reviewing your financial statements. Empowering you to have the information you need to make better business decisions each time. That process should consist of three steps.
A. Compile information – your monthly accounting information, such as your bank statement, sales and expense reports, etc., will be complied into a Financial Statement – the scorecard for your business. This scorecard is what you analyze to understand the story your numbers are telling you about your business.
B. Read your numbers –This is like the beginning step where you learn to read the words on the page. Understanding the key numbers on your financial statement like sales, profit or loss, and ending cash is crucial. Reading the numbers is the first step, analyzing is the next step. Just because you understand the words on the page doesn’t mean you understand how to comprehend them in the context of the paragraph, chapter or a story as a whole.
C. Analyze where you’re at – Understanding how to make your financial information meaningful is vital to making financial decisions. For example, taking the information on your scorecard and using it to determine your break-even point, or knowing how much working capital you have, developing a financial plan, working within a budget, monitoring trends, or adjusting prices. This is where you can comprehend the story your numbers are telling you and in financial terms, this is called financial analysis.
These three steps allow you to get a complete and accurate understanding of how much money you have, how much money you owe, what is your income and how much your business has in expenses. This is the story your numbers are telling you.
The initial time invested in learning how to read your financial statements is vital so you can use your skills to work ON your business, not IN it, and in making decisions to improve the financial performance of the business.
To learn more about the financial skills and tools to run your business more profitably, in a way that will put the FUN back into your business to help you Finally Understand your Numbers, please visit www.ewhsba.com or call 262-796-1040.
Recommended Classes to learn more: Business Essentials, Cash Flow Fundamentals