What is financial reporting like in your business? Running a business is about one thing and one thing only – making a profit. You need to focus on your profit and loss statement to ensure that you operate continuously at a profit. This is because keeping an eye on your numbers gives a better understanding of the different sources of income and more importantly the main expenses eating into this income. A profit and loss statement is simply a periodic way of presenting this information.
In this new year as your re-strategize and plan for 2011, make it a point to keep on top of your numbers. Below are some simple steps which will enable you prepare an accurate financial picture of your business without consulting your accountant!
1. Record ALL transactions undertaken by your business
2. Group and add similar transactions together as either income or expenses
3. Subtract your total expenses from your total income – the net effect of the above two steps represent the state of your business.
Carrying out this exercise on a monthly basis is a start! Next you need to figure out how to increase your income (through increased sales, pricing or introducing other service or products) whilst keeping your expenses low. This is the key to running a profitable enterprise. I’ve noticed that I’m more alert to opportunities when I keep an eye on my profit and loss statement. Business losses may come knocking at your door if you neglect these simple steps.
Please share your comments and experiences on this issue.