Knowing the Basics of Your Business Numbers is Crucial

RCS Influencer Kendall Ekerson from Simply Affordable Roofing says that understanding your business numbers is key to achieving profits.

People are often intimidated by numbers and are not sure where to start. Asking a few questions or educating yourself can often be relatively simple. You don't need to be an accountant to understand your business numbers. You should, however, have someone you trust such as your accountant and someone you feel comfortable asking questions and whose answers you can rely on. You need to know the basics if you want to truly understand the health of your business which will ultimately show your profit or lack thereof. 

A few helpful tips for understanding your numbers better: 

• Ask questions of a trusted CPA and business financial advisor 
• Read some good books 
• Take some classes 
• Talk to other owners 

When you have a good understanding of the financial health of your company you can set better goals and grow the company in a way that is strategic and in line with your values. 

You do this by getting into the numbers on a regular basis and asking questions if there is something you don’t understand. The three reports we review on a regular basis are: Accounts Receivable Aging Report, Profit & Loss Statement, and the Balance Sheet. Those reports (in addition to your bank account balances) should give you the best indication of how your company is doing. 

A few tips for creating a strong financial company: 

• Start with creating a basic proforma 
• Give yourself budgets 
• Run different scenarios to see potential outcomes and set goals 
• Use blank profit and loss templates and work backwards 
• Stick to your budgets but be able to shift if needed. For example: 
  • If you are doing better you can invest in the company 
  • If you are doing worse you need to be able to pull back  

Strategic planning and review throughout the year is also very important. When you plan and set goals you have a game plan in which to work from. You also need to share these goals and plans with other members of your team. Make sure everyone understands and has bought into your plan and vision for the financial health of your business. Together you can create a strong financially sound company. 

The final advice we have is this: watch your cash. A lack of understanding concerning cash flow, both in and out, is the number one killer of new businesses. You need to know what bills are coming due, what accounts payable are coming in, and what you need to stay afloat year round. If you struggle with this part of your business there are some ways to help free up cash and you should discuss what makes sense with your team and your accountant or trusted advisor. We can’t stress this topic enough. Something to keep in mind regarding the “theory” behind business financial management and cash flow specifically is the following quote: “revenue is for vanity, profit is for sanity and cash flow is for reality”. 

We hope you were able to take away a small tip from this and are able to try something new or implement a new plan. Do yourself and your business a favor and commit to understanding your numbers and consistently reviewing them. You won’t regret it! 

Simply Affordable Roofing is owned and operated by Chris & Kendall Ekerson and Brandon & Nalani Smith. See their full bios here.