How do you know if your business is succeeding?
We all go to work each day to generate an income for our families, pay our bills and our lifestyle. Business owners open a business to bring a new or better product and service to the market, but also to generate income and profit.
There are many ways to measure success in business. Creating a new product, solving your customer’s challenges or seeing a growing bank balance. Many small businesses tend to believe that a business is successful if the bank balance increases above their expenses. However, there could be underlying problems facing a business and hidden problems that the business owner does not see.
Tracking of income and expenses
Many business owners know the importance of accurate record keeping, but most tend to focus primarily in dealing with customers and the job at hand. Record keeping is often an afterthought dealt with in spare time and the hope that someday they will have more time devoted to catch up.
Tracking income and expenses though isn’t enough. You need to know where the company stands financially. You need to pull and analyze reports to make daily decisions that will impact your company's long-term health. Is it a good time to invest in new machinery, scale up with more employees or pay down debt? Regardless of your present day bank balance, you need to make adequate plans.
There are several reports that are essential to evaluating a company’s health;
An income statement or profit and loss of a company shows the revenues and expenses during a particular period. It indicates how the revenues are transformed into the net income or net profit.
Cash Flow Statement
A cash flow statement is a financial statement that provides aggregate data regarding all cash inflows a company receives from its ongoing operations as well as all cash outflows that pay for business activities during a given period.
Accounts Receivable and Payable Statement
The Accounts Receivable will show you whose payments are outstanding, reminding you to follow up, while the Accounts Payable statement will give you a realistic bank balance after paying the bills that are due.
A balance sheet is a statement of the financial position of a business which states the assets, liabilities and owner's equity at a particular point in time. This will show you whether your company is financially sound or technically bankrupt.
If your skills and talents lack in financial management and recording, it is best to leave this to the experts. They can provide you with sound advice - over and above providing you the numbers in black and white.