What Do I Need To Know About My Financials? A Question for Small Businesses
Let’s face it, being a small business owner is no easy task. There is no shortage of things to manage, however understanding your financials, or at least having a team to help manage them and keep you informed is key to your success. In this post, we highlight why it’s important to stay on top of your financials, and areas to prioritize your involvement.
Staying on top of your financials
Your business financials are a strong indicator of your business’ health and what you can expect in the future. Moving forward, you’ll be able to make the best decisions for you and your business and build a solid strategy to achieve your goals. Whether it’s making additional investments, identifying requirements to apply for business loans, or deciding to release a new product, you’ll be able to proceed with confidence knowing you have the financial resources to do so.
Example strategies and outcomes
Here are further examples of how understanding your financials can help you make the best decisions for your business and business goals.
Investing in new assets
Say you decide to invest in new assets – for example, new computers for your employees. Having a strong understanding of your current financials, allows you to easily determine how you will pay for this investment and when the investment will pay itself off.
Securing a loan
One day you hope to secure a loan, in order to complete a specific project that will have a strong return on investment. Being able to identify how much is required, how much you can afford to borrow and when you will be able to pay it back are all extremely important factors to map out. If you do not have a strong understanding of your current financials, you may fail to secure the loan, or worse, fail to earn a return on your initial investment.
Filing taxes
It’s that time of year, tax season. Being in the loop with your finances takes the headache out of filing taxes. You can easily determine your revenue and identify your expenses in order to stay compliant with tax liability. Not only that, you will get the most out of your deductible expenses, by knowing what ones to write off.
Key areas to focus on
While the more you know and understand about your financials, it can be overwhelming to stay on top of it all. After all, you didn’t start a business to crunch numbers in the evening.
Here are some key areas to focus on to give you a solid understanding of your business’ financial health.
Balance sheet: according to Investopedia, a balance sheet is a financial statement that reports on a company’s assets, liabilities and equity at a specific point in time.
Income statement: BDC describes an income statement as a fundamental document to make up a company’s financial reporting, showing the profitability of a business over a specific period of time. It summarizes revenues and expenses, and also shows the company’s net profit or loss.
Cash flow statement: a cash flow statement, otherwise known as a flow statement, determines and summarizes the amount of cash or other cash equivalents that enters or leaves a business.
Signs it’s time to hire a bookkeeper
Again, while it’s wise to keep an eye on your finances, that doesn’t necessarily mean you have to be the sole person managing them. If you’re struggling to manage the growing list of to-do’s, hiring a bookkeeper can ensure that you stay on track and meet your business goals, allowing you to focus on the other important aspects of your business.
Check out our post, where we highlight what hiring a bookkeeper can do for you.