For a lot of small-business owners, understanding the bones of your business and getting clear on your numbers is like kryptonite, a secret undoing and a melting of their very core and confidence.
When I started my business in 2015 as a ‘side hustle’, I had a full-time job that paid the bills. That was both a blessing and a curse because I didn’t depend on it for survival so I told myself the numbers weren’t that important. But what I did have from the very beginning was an amazing small-business accountant who helped me to understand my position, and what my numbers meant. And that full-time job I had was in state government where I was responsible for budgets and deadlines, accountable by processes and procedures, where everything had to be planned out to a T before it could be executed. This was a long way from the wedding floristry business I created, but definitely gave me a heads-up as a business owner.
If you’re running a business on your own or with limited resources, the whole concept of ‘knowing your numbers’ might feel ridiculously overwhelming, but I assure you, it actually gets to be really simple, and sometimes it’s more about getting out of your head and getting it all on paper, making it crystal clear. Starting with understanding your baseline.
The first step is working out what it actually costs to run your business per year, alot of small and micro business owners understand what their product or service costs, but don’t consider the actual running costs of their business. The things like rent, power, water, insurance, phone, internet, vehicle registration, fuel and servicing, software and systems subscriptions, wages and superannuation, networking and marketing/advertising and any other expenses you have each year running your business. Once you’re clear on that you can assess what you need to bring in each month to cover your costs and what making a profit actually looks like for your business.
Another key piece of the puzzle is moving to an online accounting system like Xero or Myob where you can see the numbers in real time, reconcile expenses on the go and easily create and access reports. And even frolimitedm your dashboard you can see where you’re at for the month and how that track against previous months.
Reviewing your numbers regularly is what gives you the best handle on your finances and helps you to start identifying the trends in the income and expenses. Some people allocate this as a ‘Money Monday’ or a ‘Finance Friday’; a dedicated time each week to review the financial situation because where focus goes, energy flows. The more you understand what’s going in and out and why, the more power you have to do something about it. It’s not uncommon in the start-up stage of business to have losses, and it’s also not uncommon to have periods even as you grow in business where there are losses. However, frequently looking at your profit and loss statements in Xero or Myob helps you to understand why there’s a loss so that it’s not a shock when it ‘appears’. You might have invested in a new software or some new office equipment, you might have taken on a new software, you might have stopped production of a particular item. Loss is not the end of the world in business if you understand why, it’s there and have a plan to bring more profits long term. Business is a long game, not a quick win.
