Making Money

If you were driving 80 miles an hour, in the dark, with your lights off, heading towards a cliff, would you like someone to yell, STOP?  

OK.

Stop!

Do you produce financial reports the "balance sheet and income statement" every week?  Do you understand financial reports?  Do you analyze sales, costs, cash flow, and debt every week?  If not, you may be heading for the cliff.

STOP.  And find out.

A Known Financial Position - KFP - is essential to your success and profitability. Known” is the key element.  It may be that you are losing money, or deeper in debt than you would like to be.  Find out how much and how deep.  That's the starting place.  The financial reports are the Scorecards in the game of business.  You can always improve the score.  But you must know where you are right now.

This seems obvious.  But from my experience as a business consultant, nine out of 10 business owners don't know where they stand financially.  There are a couple of reasons for this. 

• They don''t know how to keep score.
• They are afraid to look, because they don''t want to know how bad it is.

Learning how to keep score is the focus of the Making Money section of The Bare Bones Biz Plan.   

You'll be at a Known Financial Position when:

• You can generate Income Statement and Balance Sheet reports and trust that the information is current and accurate.
• You can go through the reports line by line, account by account, and understand what each dollar amount represents. 

Getting to KFP Exercise

You need a good accountant.   Most accountants just prepare tax returns.  A good accountant will help you develop an accounting system that delivers the financial information you need to make good decisions.  A good accountant will be excited when you tell him that you want to learn how to read and use financial reports.  A good accountant won’'t feel threatened when you tell him you want to move the accounting system “in house” instead of shipping it out to him. 

A good bookkeeper is meticulous about data entry and getting it entered on time.   In a small company, you may hold the Position of bookkeeper.  This will serve you very well in the long run.  Embrace the Position.  Figure out double-entry accounting and how to fully utilize your accounting system.  When you are ready to hand off the Position, you’'ll be prepared to work well with your bookkeeper to receive on-time, accurate and relevant information.

Schedule a meeting with your bookkeeper and accountant for sometime this week. 

Go through the Balance Sheet and Income Statement, line by line...account by account.  Ask these questions:

• Where do the dollar amounts come from? 
• What do they represent…what do they mean?
• How does the information get entered into the accounting system?    
• How can we structure the Chart of Accounts to better reflect how we do business? 
• How can we separate information so that we know how different divisions of the company are performing?  Should we create divisions in the accounting system?
• Are we tracking information that we don't really need?
• What will it take to generate current and accurate Balance Sheet and Income Statement reports at any time?

Finally, look over the Month End Checklist together. 

The Month End Checklist makes sure that you stay in a KFP.  Ideally, your bookkeeper completes the checklist.  Your accountant can help by checking to make sure that your reports are accurate, and that all the legal and tax compliance requirements are handled.  Commit to completing this checklist every month, starting right now. 

Don’'t delay.  Insist on meeting this week.  Insist on getting to a KFP by the end of this month.   It is that important. 

Store copies of your most current Balance Sheet, Income statement and Month End Checklist in your Plan Binder in the Making Money section.  Write “to do’'s” and items that need follow up in your Master To Do List. 

“If he appreciates his lack of knowledge he will find a way to acquire it, and it is cheaper to learn before an investment is made in stock and fixtures, tools, etc., than it is to learn afterwards by sad experience.” 

Wesley A. Fink –
Bookkeeping and Cost-Finding for the Plumber, published in 1918.

Getting it Sold