Ignoring these financial indicators could cause serious risk to your business!

Written by Pauline Bright on February 22nd, 2017
Ignoring these financial indicators could cause serious risk to your business!

There are tell-tale signs in your business that will give you an indication of how you’re tracking. Is business up or down? Are we making money or not?

You’re profit and loss statement is a good place to gather this vital information. Here are some things to watch out for:

  • The obvious one is – tracking your sales. Are they going up or down? Have they flat-lined?
    • Compared to what? Last month? Last quarter or last year? How similar were the conditions in that period? Are you comparing apples with apples?
  • It costs you more each month to deliver your products or service: Track your Cost of Sales. Up down or sideways? Do you know why? Buying too much product or your team not being productive enough could be the cause.
  • Your Gross Profit and Net Profit go down and your fixed expenses go up! Track them using the same method and fix this fast!
  • You only look at the “bottom line” of your P&L report. The numbers look OK but you don’t know how the business is trending. Don’t just track the NUMBER, track the PERCENTAGE of turnover.
    • E.g if you made $500k in Sales (turnover) and a 10% net profit you would have made $50,000.
    • If you made $50,000 Profit on $600k turnover you would have made 8.3% profit. If you watch that % month by month you can see what’s happening to your profitability. Track the % to see if it is going up down or sideways.
  • You take the profit as your unofficial “salary”. If you haven’t formally paid yourself a wage or salary it won’t appear on your P & L, so if your pay comes out of the profit and you take it all, you won’t have anything left for tax or growth or emergencies. Talk to your accountant about this and do a budget.

Learn to love the numbers! They are your friends. They can help you grow your business and they can prevent you from getting into trouble.