Tracking your business income and expense is by far the most important thing you can do if you want to run a successful small business. Sure clients are the lifeblood of any business. But if you are looking for ways to significantly ramp up your revenue and profit, start by keeping your eyes on the books.
Some business owners like to turn the task of bookkeeping over to someone else. I admit that I am a huge fan of delegating. I turned over my internal bookkeeping to people on my staff a few years ago. But I still keep a very close eye on where profits are coming from and how we use our resources. I scrutinize the Cash Flow Statement, Profit and Loss Statement, the Balance Sheet and the check book register carefully every month. These are the best tools for any business person who wants to make real-time adjustments in operations before they become problems.
How to use business income and expense numbers to ramp up your business profit.
Is revenue increasing or decreasing? If revenue is up, why? Are you selling more stuff or charging more for the same output? Do you need to add new staff or equipment in order to really capitalize on that good fortune or is the current uptick in business short-lived? The key is to get ahead of the ball. The last thing you want is to squander a great opportunity because you don’t have the infrastructure in place to take advantage of it. The only way you’ll be able to do that is to watch revenue.
If revenue is decreasing, ask yourself the same questions. Why is this happening? Is it temporary or a more serious concern? Do you have to scale back – or maybe increase your investment in sales and marketing in order to turn the tide?
In either case, the sooner you take action the better. Find out what the problem is and identify what needs to be done in order to correct it now.
Revenue is important because it drives profit but profit is more important. The one and only way you can get a meaningful sense of your profit is to run month-by-month comparisons. That will tell you what the trends are in your firm.
I currently use QuickBooks for my business and YNAB for my personal finances. QuickBooks allows you to run month by month, side by side reports and this is fantastic. I look at each and every month over the last 12 month. I review the profit of course but I also look at revenue and expenses. Has revenue changed? Why? Are my expenses out of line compared to previous months?
Why? Don’t ever get caught by surprise and the way to make sure that doesn’t happen is to review your reports – yourself – every month. And the easiest way to make sense of what those numbers mean is to run month-by-month comparisons.
Anytime you talk about record keeping you have to build in safeguards no matter how much you trust your staff.
Take a look at the revenue numbers for the month and compare that to the bank deposits. Next, look at your expenses. Compare the booked expenses with the cleared checks. Do they match?
Obviously if you have one person doing data entry, have another person run these audit reports – or better yet, do them yourself.
Keep It Simple
Take time to set up clear categories for each expense item and try to keep that list (chart of accounts) as concise as possible. If you have a marketing expense category for example, do you really need a “promotional” category too? Probably not. Try to consolidate whenever possible and make sure everyone in the firm is on the same page.
Think about how you are going to use the information when you set up your categories. That is the key to using your data to explode your income. Used correctly, your bookkeeping will tell you:
- What is making money?
- What isn’t making money?
- How you are spending your money.
- What needs to change?
I’m sure you’ll agree that this is all invaluable information. The only way to get that intel is to set up your categories wisely, make sure the data is accurate and review it with a fine-tooth comb every month.
Although most people think of tracking business income and expenses as a boring task, I find it fascinating. It is the quickest way to find out what is going well and what needs attention in my business.
How do you deal with your bookkeeping? Do you do this yourself or have someone else keep your books?