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Number crunching….. The Good and Bad in Business

Success can be measured in a variety of ways. Today I want to focus on the financial side of business. Profit, what is left after all expenses are paid, including the owner’s salary, is one of the measures of success. It is a gauge as to how the business is doing and it serves as a warning bell when the profit number goes down.

Management, be it a single owner or a team, must be aware at all times as to the profitability status of the business.

In the world of small business I have found three methods of how accounting is managed:

  • Unfortunately, the most common method is the check book method. Checks are written as long as there is money in the account and if all expenses are met, then everything is “ok”.
  • The next method is the business owner who spends much too much time doing projections and “what ifs”.  Reality is not part of the number crunching in this scenario; the business is being neglected in favor of future possibilities.
  • The third and most scarce method is one in which a budget is prepared and monthly income and expense statements are measured against the projected budget.

Obviously the third method is the correct one. Every business, no matter what size, should have a budget to work against. In a small business, where change is the only constant, I recommend a three month budget with monthly income and expense reports.

In a small business, a simple budget can be established in less than four hours (remember it will last three months).   With the wide variety of accounting software now available, a half hour every day should allow you to input your income and expenses. A push of the button at the end of each month will tell you exactly how your business is doing.

Time management is a very important part of growing a small business, and time must be allocated each day, week and month to maintaining a proper accounting system. No matter how busy you are, or how many emergencies come up, never neglect the number crunching.

There are a lot of other facets to the budgeting process including who should know how the business is doing.  Just like everyone on the management team must follow a Strategic Focus Business Plan, so must they know the financial status of the company.

I frequently tell my clients to run their business as if they are getting ready to sell it. Buyers look at the profitability of a company; and as an owner, you are the buyer of your business.

Work is only hard when it is not done in a timely manner.                                          Nick J. Petra

Nick J. Petra CFP      Our only business is to help you grow your business©    www.strataegicduck.com

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