If “financial reports” only brings taxes to your mind, you’re probably failing in the financial side of your business.
Why? The impact financial reporting has on your business is not about taxes – it’s about getting important information, and then using that information to grow your business. Taxes are summarizing what happened in the past, while financial reporting uses the past for the purpose of a better future through projections, making adjustments, and planning. If your mind is stuck on taxes when you think of finances, you have the wrong mindset, and are speaking the wrong language.
Wrong Mindset, Wrong Language
Accounting, which is how financial reporting gets done, is the language of business. If all you can speak are a couple of words (taxes), you’re limited, like a foreign tourist who doesn’t know the native language. You might know enough to ask someone the location of the nearest restroom, but there are thousands of conversations, signs, words, and messages you’ll miss because you don’t speak the language.
Without speaking the language of business, it’s hard to put financial reports together, much less interpret them and use to guide and plan for your business.
Maybe failing is an overstatement, but it’s hard to get ahead if you’re looking behind. Worrying solely about your taxes when it comes to your small business’ accounting is taking your business in the wrong direction.
Using a Sales and Language Learning Approach
Businesses need new sales, right? Well, imagine if you focused 100% of your time only serving your current customer base and turned away any leads and did no advertising. Even if you served every customer to the best of your abilities, at some point, you would need to add new customers in order to grow, possibly even to survive.
Approach your financial reports the same way you would growing your business’ sales and learning a new language. Here’s how to shift your approach and change your mindset towards a happier, healthier, and more profitable financial future for your business.
1. Put it Into Practice
I majored in Spanish for a year and a half in college and took five years of Spanish in elementary school. Do you know how much I still remember?
“Donde esta el bano?” (Where’s the bathroom)
You have to learn and practice in order to maintain and expand what you know. Put together a cash flow statement, revisit what your profit margins are and see what can be adjusted to increase them. You either need to learn the language, or work with an excellent translator.
2. Set Goals
It’s very likely you have goals tied to annual revenues in your business, but do you have goals for financial forecasting and planning? Do you look at monthly statements to check your growth rate, recognize trends and potential dangers?
Start with simple, manageable goals. Here are a few you should consider making.
- By the end of the first week of a month, spend one hour reviewing the previous months’ statements.
- Calculate your profit margin and revisit how to improve this margin each and every month.
- Never file another tax extension for your business (if you have in the past).
- Put a financial system in place that reduces your bookkeeping responsibilities.
Homework: Take a few minutes to jot down a couple goals related to the accounting side of your business. What do you with you knew, what do you know you should be doing that you aren’t? After you’ve come up with a few, go on to #3.
#3. Plan Action Steps to Achieve Goals
Planning for $1M in sales without any idea of how you’re going to make those sales is just as pointless as setting bookkeeping and accounting goals without knowing what it takes to accomplish them. Now that you have goals (set in #2), you need to plan how you’re going to achieve them.
But, there’s one small missing part of the equation.
One of my very favorite extremely simple equations is for accomplishing goals.
Goals = Ingredients + Steps
Take a look back at your goals you created in #2. Are there missing ingredients? Do you need a trained bookkeeper, more time, more money, or training for yourself? If you are missing ingredients, you need to get them in order for your steps to actually lead to accomplishing the goal.
Take a few minutes to go back to your goals, and write down what ingredients each needs, and then what steps you need to take to accomplish them.
Here’s an example:
Goal: Reconcile monthly transactions by the 10th of the following month.
Ingredients: Time, accounting software or ledger, receipts, entry of transactions into software or ledger, knowledge of how to balance journal entries, scheduling to develop a routine
- Learn how to execute proper setup of cloud accounting system or ledger system (or outsource to a virtual team).
- Capture all activity as it happens and keep all records.
- Enter in information into accounting system.
- Balance journal entries before the 10th.
Now get going, and good luck turning around your small business financial mindset and accomplishing your goals!