Know what your books really say

Your financials statements tell the story of your business’ performance and its positioning to take you into the future. But how well can you interpret the information contained in them?

No matter what age or generation you are or what your background might be, reading a set of books takes some practice. Not to mention there’s various different ways accountants prepare reports. You may have seen your accounts looking different or in different reporting formats in different years.

You don’t necessarily need to do an accounting paper, but half the work comes from making sure your accounts are designed so you can see clearly the numbers that are important to your business.

While it’s difficult for me to give you the accounting 101 in three minutes, here’s some useful tips to help you with your numbers.

Know your Key Performance Indicators (KPIs) — your business will be dependent on certain resources, costs or inputs for its success. Knowing where these are in your financials is crucial — look at them as a percentage of your turnover to get some perspective on how much of each dollar is used on that cost or resource.

Don’t overdo the analysis — There is such a thing as too much information. Setting up costs centres or codes for irrelevant things can get you to focus in the wrong areas. You don’t need to know how many pens you’ve purchased or how much toilet paper is being used (yes, I have seen a business monitor this).

Convert numbers to words — take the numbers and convert them to sentences and write them somewhere, maybe even on the financials. Start simply by looking the profit and describe what you see. It could be something like “in 2019 I made $80,000, $10,000 more than last year”. Learn to tell the story between the years of your business and describe the differences you see. There will often be more to the numbers, landing a large client, losing a large client, investment, hiring and trying new things. These all provide a record of what you’ve achieved which is a useful blueprint for what you might do in the future.