Is Your Business On Track For Success This Year?

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We are in the 4th quarter of the year and by now you should understand how your business has performed thus far. 

Or maybe you don’t?

According to the SBA and Investopedia, “33% of small businesses fail in the first two years and around 50% go belly up after five years. The most common reasons are running out of money and the inexperienced management of business operations.” You don’t have to become a statistic.

As a service-based small business owner, it is uber important to press pause on delivering those world-class services and start to assess how well you are doing right now in your business. This is where the financial review can come in handy.

What Is A Financial Review?

According to Princeton University, a “Financial review is an overall review of your organization’s summarized financial activity.” This review should include your profit and loss, balance sheet, and statement of cash flow. 

You are probably wondering what exactly to look for. The list can be long but the simple answer is trends. The data on financial statements can be used for a variety of things but the most important item to take into consideration is trends. 

What are good trends that you want to see on your business financial statements?

Income Statement a.k.a. P&L

  • Increasing revenue over time in a measured steady manner.

  • A Gross Profit that is heading upwards and is stable.

  • The operating expenses should not exceed what revenue you are generating.

  • Your Net Income should increase over time and remain positive. 

Balance Sheet

  • Your current assets should be highly liquid if you need cash to handle business matters. 

  • The total liabilities of your business which include the current & long-term liabilities should be decreasing.

  • Positive asset growth should show that your business is growing in the direction of your business plan.

Statement of CashFlow

  • The business should show positive operating cash flow under the “operating activities” category. 

  • The cash that “flows’ into your business should in large come from your customers and not other means like debt financing.

As busy service-based business owners, we truly care about making sure that our customers are taken care of. In contrast, we often forget that our businesses are the most important customer. We must ensure that our finances are in order and that we are on track to meet the financial targets and business objectives we set for ourselves.

The best way to do this is to stay on top of the financial health of your business by looking at trends on the balance sheet, income statement, and statement of cash flows. This activity will help navigate around any challenges that might arise and help to plan for success in the upcoming year. If your books need a little bit of attention feel free to reach out to me for help.

Keep IT Sunny~