Your business CAN'T ACHIEVE GOALS without KNOWING where you're STARTING from
I recently had a bad experience with my iPhone map. I was trying to get to a FedEx office, but when I hit "GO" for the route, I was baffled by the directions I was given. You see, somehow I had told my phone to start the route from my home rather than from my current location. Obviously, no matter how good the directions were, they were useless to me in getting the route to my destination. Has this ever happened to you too? Or just me. :)
Turns out that achieving your goals in business works the same way. We won't achieve the goals we set for our business without first knowing where we're starting from. I talked about this on this video podcast, but also am explaining it in writing here.
How do I know where my business is starting from?
The short answer is to look at your business's financial results. Yes, I know that's not the most exciting answer. You'd probably rather I said something about SEO or pretty much anything else, but the answer is really that the numbers are the GOLDEN INSIGHT into where you are and the steps YOUR BUSINESS needs to take to achieve your goals.
Let me digress for a moment...GOALS are so important in business and in personal life. Without setting goals, we will just go through our days. It's like driving your car and being happy with wherever you run out of gas. Yes, you got somewhere but was it where you were hoping to go? So set some goals! If you want some help doing that, you may find this episode on the roadmap to achieving your financial goals helpful.
Back to finding your starting point: Your company's P&L is a high level PIN you drop that shows where your business is in relation to the goal you've set. A P&L is a "profit & loss statement" (or "income statement") for your company. It covers a period of time - like last year - or even last month.
I think of a P&L a little bit like a report card from school. It shows us where our business excels, but also where we need improvement. (Anyone else get an "N" on their elementary report card? Pretty sure I got it for talks too much....)
If your financial statements aren't accurate, then you don't know where you're starting from. We saw how that worked out for me in driving to the FedEx office, right? Not only will we not achieve our goal, but inaccurate or incomplete financial statements will cause a big headache come tax time.
Now that you know that you really do care about having a P&L, you're probably wanting the simple steps for "HOW do I create this PIN to know where my business is starting?"
Let's get started creating your P&L PIN:
Use your business's accounting software, spreadsheet or just pen & paper to capture financial data. Any of these will work.
Gather your business bank and credit card statements for the period you are going to do this for. I suggest starting with your last full month to get started on this financial habit.
Record your income. From your bank statement, this will look like deposits. Don't forget that the deposit is reduced by payment processor fees, so you will want to record the full sale/revenue and merchant expense (example $100 sale with $3 fee is $97 in your bank account, but should be recorded as $100 revenue and $3 expense so that you can analyze your results as well as present accurately to the IRS)
Expenses - record all the money you spent this period. You may need to check your personal accounts to see if any business expenses are over there. It's not ideal when this happens, but it's reality for many small businesses, so we need to find and capture those business expenses too.
Group the expenses into categories - not more than 10 categories for a small business. What you are trying to do is put similar type expenses together so that you can analyze what areas you are spending $ on in your business.
Now that you have this information, you have a quick snapshot of your operations for this period. Revenue/Sales (money IN) less Expenses (money OUT) equals PROFIT. If expenses are greater than revenue, your business is running at a loss. Voilà! Now you know where you're starting from! You can do this every month, quarter and year for comparison.
Now that you have this basic P&L, it's time to look at that starting point & do some analysis.
Look at the % of expenses spent in each category. Does the allocation make sense for your business? How about expenses overall? Does anything surprise you? Data doesn't lie so this is a great time to just take in the good things & those you will now change.
This QUICK & SIMPLE P&L can reveal sooooo much information to help you run your business better. Even comparing one month to the next will help you see trends and make decisions too.
This information provides the starting point that helps you design those STRATEGY action steps to get you from where your business is to the goals you set. Don't sit in the limiting belief that you can't do this or don't have time. Implementing these simple steps & creating this habit can set you apart from your competitors and also give you the confidence to take control of your business finances.
If you're a DIY kind of business owner, then grab your calendar NOW and block off 30 minutes to an hour each week to take control of your business finances. Seriously, pull your calendar out now & block the time. You absolutely can do this.
If you're overwhelmed at the thought of this, here are some additional resources:
Google and YouTube have a lot of information available. You can teach yourself almost everything for free using the internet! Just be sure your source is a reputable one. I see way too much misinformation out there & it makes me sad.
Pick up a basic accounting book. There are so many to choose from, and it doesn't have to be hard.
Looking for other small business owners as well as more accounting/financial trainings, tips and strategies? Maybe you want people you can collaborate with, get feedback from, or just know you're not alone in this journey.... If that's you, I invite you to join us in our FREE Facebook group: Small Business Finance SIMPLIFIED.
If you're overwhelmed by the DIY option and want professional "done for you" services, book a complimentary consultation to discuss Victory Advisory Services helping you. We love our clients!
I'd love to hear how these steps work for you or know what other questions you have. Comment below, connect with me on Facebook, LinkedIn, or Instagram, join our Facebook community, or email me. I love to meet new people!
Cheering you on!
Christie Varner, a 25-year CPA, is passionate about helping YOU, small business owner, gain confidence & take control of your business finances so that you can achieve your financial goals without sacrificing your happiness.
When she's not empowering business owners, she's eating Tex Mex, drinking coffee, playing with her Havanese dog, Max, or learning something (and will teach others soon!) from Google, YouTube or a book!