Why you should keep an eye on your numbers

You are required to do your books in order to report your taxes: once a year for income tax and usually more often for HST (It can be annually, quarterly or monthly).  But the most important reasons for doing your books are to find out how you are doing and to continually improve your business.

The most successful business owners I deal with check their numbers at least once a month.  They look for specific numbers based on the specific aspects of their business they are trying to improve.  Let me give you a few examples:

Let’s suppose you want to take a trip in a few months.  You need to get a few dollars ahead to pay for the trip and to cover your ongoing costs while you are away.  There are several strategies you can use.

1. You can decrease your spending and save up the difference.  You would watch your bank account to see that it is increasing to match your plan.  This is a question of cash flow, so there would be a mix of decreased spending, deferral of spending (watch out that you can pay as the bills come due) and keeping your cash in the bank.
2. You can increase revenues by working extra hard for the months leading up to the trip.  You would watch for overall sales, sales per customer and accounts receivable to see that your invoices are being paid in a timely matter (again, this is a lot about cash flow).
3. You can set up a few subcontractors to carry on for you while you are away.  You’d watch profit per project, interim billings and their payments.  This is a strategy that you would have to have used in the past because it is not something to start just before leaving town.  Possibly a good long-term move.

Let’s suppose you want to figure out whether or not to buy some new equipment.  Here are some considerations and how you would answer them:

1. Will it pay for itself?  Watch for what it costs you to do the work the equipment will do when you get it.  Will the cost of the equipment be less than that?
2. Does it make sense?  Looking at that aspect of your business, is it profitable on its own, is it growing, is it aligned with your core business?  You can find the answers to the first 2 questions if your bookkeeping supports that information separate from your total business.  You can track that information for a few months by analyzing your income sources and your production costs.
3. Can I afford it?  Will your current profit cover the increased operating costs and the monthly payments or the outright purchase. Or will the increased revenue and/or decreased expenses cover the new costs.  Again, history will help you make that decision.
4. Is it a good move?  Using a combination of past information and educated forward thinking, you will know when the time is right.

Business owners who know what to track, watch these things and they know not only whether to do it or not, but when.  And they align their business (and cash or credit) to be ready.

I would be remiss if I didn’t encourage you to delegate this task, too.  It helps to have a fresh outside eye looking at your possibilities. A good advisor has information about your industry and how you are doing relative to others, which will show you areas for improvement.  And they will have a broader perspective of other industries to share a wider variety of best practices.

I have worked in many industries (including food service, agriculture, construction and business services) and with many business owners over the past 25 years helping them grow their businesses.  I am often asked to work on a project basis; taking on a CFO type of role.  Whether it is expanding into a new location or exploring new alliance opportunities, it helps to have someone else on your side.

What are you working on and how can I, and everyone I work with, help you?  Call today for a free, no obligation chat.  I love to hear what’s going on.