As a parent, I enjoy reading my kids report cards and making them sweat like I did when I was a kid and my mom and dad went through my report card.
The truth is that their report cards are, for the most part, better than mine were. The comments from the teachers are much nicer for sure! But why tell my kids that?
If you are in business, you need a report card. Many business owners I know look at the only statement that means anything to them: their bank statements. Often, they don't even look at this statement as they just check their bank balance when they are doing a deposit.
Many small business owners base their important decisions on what is in the bank on any given day. This is problematic.
A while ago, Cassandra contacted me after I had given a presentation to a group of business owners. She and her husband were the proprietors of a hardware business but their interests lay elsewhere. They had turned over the business to be run by her brother-in-law.
After two years, the brother-in-law decided that he didn't want to manage the business anymore and quit.
This left Cassandra in a pickle.
She and her husband and their kids had already left town and relocated 1,125 km away.
Upon returning to the business, she realized that the accounts were a mess. Taxes had not been filed, year-ends had not been completed and the bank account was running on empty. The business's sales were falling and, as a result, Cassandra and her husband could no longer maintain their lifestyle.
They had never needed to look at financial statements before. They had thought that everything was fine but had inadvertently been draining the bank account.
They were in deep trouble.
The report cards you need to look at on a regular basis are your income statement and your balance sheet. These are the two documents that you should be getting from your bookkeeper each and every month.
What do you need to look at on your income statement?
Your sales income/revenue: Are sales increasing or decreasing? By what percentage? Do you have certain departments that are growing or declining compared to the previous period? This brings up the question, why is that happening? What are the trends in the business? Are you doing anything differently that is helping or hurting sales?
The more you can figure this out, the better chance you have of being successful.
Cost of goods sold: Look at each line on your income statement. What has changed from the previous period? Can you explain the changes? Is there any input cost that you can reduce?
Gross profit: Look at the gross profit percentage compared to the previous period. Has it gone up or down? If the gross profit has gone down, you may need to make changes to ensure this does not continue. What needs to be done? If it is going up, good for you. Consider what you have done to make this happen. Can you continue to do this?
General and administrative expenses: Carefully compare this area line by line to the previous period. Are there expenses that have gone up? Why have they gone up? What needs to be changed? Are there areas where you can eliminate more costs? Remember that every unnecessary cost that you can reduce goes directly into your pocket as an owner.
Profit: Compare your profit in this period to the previous period. Are you going in the right direction? Have you hit your goal for your profit? Are you happy with this number or discouraged? What needs to happen for you to reach your goals? Remember, you own the business to make a profit. This area is especially important.
Your balance sheet: This is pretty simple. When you are looking at your balance sheet you need to know how much money you have in the bank.
Your accounts payable - how much you owe others. Accounts receivable - how much people owe you.
You might want to look at your long and short term debt to see how much money you owe on loans... though perhaps you might want to block that out of your mind.
Like Cassandra, you are asking for trouble if you do not know where you are coming from, where you are going or how well your business is doing. This is like driving a car without a gas gauge or a sports team not finding out until the end of the season if they have won or lost games during the season.
You wouldn't play sports or games without keeping score.
Why play roulette with your business by not keeping score? Make it a point of keeping track. Get those monthly report cards from your bookkeeper or accountant.
Dave Fuller, MBA is a certified professional business coach and the author of the book Profit Yourself Healthy. Dave didn't have great report cards in school but had some pretty good ones as a business owner. Email dave@profityourselfhealthy.com
