Business Owners: You Should Be Paying Attention to These Financial Numbers
Many entrepreneurs are not experts at the financials, which is why they hire accountants to handle their books. Nonetheless, they must possess a strong understanding of what three key numbers in business finance mean to stay on top of their company’s monetary health, and you should be paying attention to these numbers, too. Even if you’ve entrusted your books to an experienced CPA, you should still pay attention to the following pages of your financial statements.
Profit and Loss Statement
When your accountant says “P&L,” he or she is referring to your Profit and Loss Statement. This statement shows how much money your business made after all of your expenses were paid. You should review your P&L statements on a regular basis to see if you’re making money or losing it, and it’s a good idea to review the numbers as far back as a year. Have them subtotaled by month, so you can see which months are more profitable for your business than others are.
Your expenses are something that you should monitor between business finance meetings. You must stay on top of the money that is leaving your company. All expenses eat away at a company’s profit, and some expenses, such as operating costs, do not provide a return on your investment. When reviewing your financials pay close attention to your assets, your cost of goods sold and your liabilities. All of these numbers can get out of control quickly unless you keep an eye on them.
Your expenses go out and your revenue comes in, and hopefully the latter is much more than the former. How do you know if your business is making money? By checking your revenue numbers. Revenue includes the money earned from selling your goods or services, selling any assets you no longer need or even returns on your investments. Naturally, you want to see high revenue numbers on your reports, as this means your company is bringing in a cash flow.
If you feel as if you’ve just a Business Finance 101, you have in a small way. These three numbers are the ones that give you an accurate snapshot of your company’s financial health, so it’s important that you pay attention to them. Don’t just look at these numbers once a month during your finance meeting. Make sure you receive updated figures frequently so you can assess any hiccups. The sooner you identify a financial leak, the quicker you can patch it up.