Has your financial situation or fear of what your financial situation may be paralyzed you from being pro-active about your finances?
Many small business owners feel a certain level of financial stress. Often when a business owner feels this kind of stress the first thing they stop doing is their bookkeeping – or reading their reports sent over by their bookkeeper because they just don’t want to know. Think “Confessions of a Shopaholic” where the main character just shoved her bills into a drawer rather than open them and deal with the reality.
As your logical brain will tell you – this is the worst thing you could do. When finances are tight is THE time to be having monthly if not weekly meetings to review where your money is going and where it’s coming from.
To help you gain some confidence when staring at those pieces of paper we thought we would provide you with a bit of insight into what to look for. Each month your bookkeeper should provide you with a Balance Sheet, Profit and Loss Statement and Journal reports.
Balance Sheet
The Balance Sheet is a high level list of monies owed, owing and being held in your bank. If you are an annual GST remitter you can stave off your year end surprise by seeing your current GST liability on this report and start saving to ensure you have the money. You can see at a glance all money outstanding (owed to you) so you can stay on top of collections and all money you owe. The bottom line is your net worth as a company.
Profit and Loss
I love this report – the P&L is the nitty gritty of your day to day expenses and income. How much are you spending on your cel phone, how much on office supplies etc.. You can ask for a report that compares this year to last or if you’ve entered your budget into your accounting software you can get a report that compares your current spending to your budget. What expenses have increased, what seems unusual? If you have different types of income (web design vs graphic design as an example) is one out performing the other – are there surprises? One of our clients was shocked to see how high one of his line items was and with a few adjustments in his business practices has been able to save over $6000 in the last 6 months. If you’re feeling panicked about finances wouldn’t that be a nice surprise?
Journal report
The Journal report is basically a report that lists every transaction run through your accounting software. This is a good report to review to ensure that items have been coded to the right categories and that all items have been included. Just giving it a quick glance for anything that pops out is a good idea. Is there a big invoice you think should be included was that charge a local “meal” or a “travel-meal” (they have different tax implications). This report will let you know how your bookkeeper coded the details.
In short – if you’re wondering “where is my money” then it’s time to say “show me the money” and sit down with your bookkeeper (or at minimum your reports) and find out what’s going on.