Some people underestimate the significance of financial statements. I know many small business do not have a lot of activities, so they don’t care to invest in bookkeeping, but I know many “small business” that are doing big profits and absolutely need financial statements. So, if this is you. I am going to explained to you how to do a quick quarterly review to track your progress. To be honest, sometimes we don’t know how much we spend or how much we make until we see the numbers behind the results. Even myself, I can guess my progress but I am still shocked when I see the actual numbers or the percentage of growth. So there are a few number you should pay close attention to.
1.) Check your month to month Income
You want to know how much your income is increasing over the months. Your income is simply the money you make before any expenses or before any cost needed to create your goods or to provide your services.
2.) Check your month to month Gross profit
You also want to know how much your gross profit has increased over the months. Your gross profit is a very important number. It may look like you made $100,000 income but if you had to spend $65,000 to get make your products then you only made $35,000.
3.) Check your month to month Net Profit
Your Net Profit is one of the most important numbers because it shows how much money you make after your expenses. The goal is to make a profit. If you are making a profit you able to do more in your business and most importantly you are able to pay yourself.
4.) Check your month to month cash flow
Now cash flow is not something many people talk about. Your cash position is very important. Many people spend money as quick as they make it. One of the financial statements called the balance sheet shows how much cash you have in the bank at any giving time. The more free cash you have, the easier it is to run your business, freely.
5.) Check your largest expense
Keeping an eye on your largest expense is always necessary. Some peoples largest expense is their payroll. Many people’s largest expense is promotion or advertisement. The key factor is making sure the money you are spending is helping you make a profit. If not, you need to evaluate your spending.
So, How to you actually do your quarterly review? You take your numbers month by month. In whichever category, rather it is income, gross profit, net profit or etc and subtract the first number (January, ex: $12,200) from the second number (February, ex: $18,500) which is a 6,300 difference. Take your difference and divide it by your first number 6,300/$12,200 = .5163 x 100 = 51.6% increase. Use this method to track your growth. Some people experience 400% growth over time. Choose a goal and track it until you reach it!
If you want more information or more guidance for quarterly reviews click here to schedule a time for us to speak.