Does your business keep you too busy to look at the numbers? Busyness is a part of business until you have systems and processes in place that allow you to concentrate on running the business rather than doing the busyness.
If you’re like me, I seem to do even more now than I’ve ever done before, cramming writing, podcasts, videos and marketing into my working week. But the one thing I always make time for is the numbers.
I know, I’m an accountant, so logically I’ll look at the numbers, but I’ll let you in on a secret, it hasn’t always been that way.
There was a time in one of my prior businesses where I knew the numbers were bad. I was too busy to look at them for many months; too afraid of what they would say, too scared that they would show me up for the failure I was feeling deep down inside.
When I eventually did look at them, they were even worse than I thought. By looking at them, I was able to identify my course of action. This involved reducing costs to drag the business back onto a stable financial footing.
Sometimes it’s just overwhelming with too many numbers.
My three key recommendations for when you’re too busy to look at the numbers.
The temptation when you’re struggling is to check your bank account daily so you can pay urgent bills. Or you may check to see whether you’ve got enough to pay the wages or rent that is due later in the week.
The issue with only looking at your bank balance is that it doesn’t show you what bills you need to pay and it doesn’t show you what money you’re expecting to receive in the upcoming weeks.
Rather than focussing solely on your bank balance, instead, make sure your bookkeeping is up-to-date. It doesn’t matter whether you’re doing it yourself or you have delegated or outsourced it. If not done daily, then as an absolute minimum, it needs to be done weekly.
All invoices must be entered and processed as soon as the work is completed or the sale processed. Similarly, all bills must be entered immediately you receive them to ensure that your numbers are accurate.
At the end of the week, or the beginning of a new week, review your balance sheet to look at the following numbers:
Bank balance – yes it’s okay to look at this, but only in conjunction with the next two numbers
Accounts receivable (your accounting system may call this Trade Debtors) – this is the total of invoices you’ve issued to your clients or customers who haven’t paid you yet
Accounts payable (your accounting system may call this Trade Creditors) – this is the total of bills you owe for services provided to your business.
Add these three numbers together, remembering that accounts payable is a negative number, so too is a bank overdraft.
Bank balance $ 1,589
Accounts receivable $ 25,675
Accounts payable $ 13,680
Total would be $ 1,589 + 25,675 – $ 13,680 = $ 13,584. This is a positive number which is good. What these numbers tell me is you need to be chasing up your clients or customers for payment of your invoices.
Bank balance $ 1,589
Accounts receivable $ 5,750
Accounts payable $ $ 9,842
Total would be $ 1,589 + $ 5,750 – $ 9,842 = -$ 2,503. This is a negative number which is not good. What these numbers tell me is you need to increase sales.
Bank balance (overdrawn) -$ 8,543
Accounts receivable $ 4 721
Accounts payable $ 8,647
Total would be -$ 8,543 + $ 4,721 – $ 8,647 = -$ 12,469. This is also a negative number, and negative numbers aren’t good. This may be caused by a lack of sales, expenses too high or an indication that you need to look at your pricing.
In each of these examples, there are many factors that impact the numbers. My suggestions of areas to look at are broad and are, for example only.
These three numbers are purely a starting point to delve further into the detail of what is happening in the business.
While you will always be too busy in your business, take five minutes once a week to look at the numbers. Consider what they are telling you and what action you could take to improve them for the next week.
Originally published on www.smallville.com.au