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A 5 Day Challenge To Master Your Business Finance

In 40 years of advising small businesses and helping them grow, I have noted that the most successful small businesses to 6 things really well:

  1. They show and encourage leadership within the business;
  2. They make planning a habitual practice in the business;
  3. They are always marketing;
  4. They ensure that their customer enjoys a fulfilling journey through their business;
  5. They have made their processes and operations efficient; and
  6. They do not neglect to understand their finances.

This week I’m going to talk about finances.

But I’m not going to teach you how to be an accountant!

I’m going to tell you why you cannot neglect the skill of understanding your finances and then set you a challenge that will show you how to cheat your way to mastering your finances!

Like most people who are not finance trained you probably bought software that was hopefully easy to use, and you copied the data at the end of the year and gave it to your accountant. As soon as you could afford it, you hired a bookkeeper and handed the operation of the accounting software to him or her (probably with a sigh of relief).

Well, that’s not good enough, and here’s why.



Firstly, you started this business because you had a purpose to achieve – perhaps a vision of what the business would be like when you succeeded and what it would give you in terms of security and lifestyle.

You saw the profits giving you an affordable and pleasant lifestyle where you enjoyed going to work and still able to spend time with family and be able to look after your loved ones.

So, this means that one of the important outcomes of your vision must be profit and cash flow.

If this is true, then you cannot just do your thing and then wait until your accountant tells you how much you made, or lost!

To get what you want, you need to know the financial result of your decisions on a regular basis.

Secondly, you cannot abrogate your responsibility to yourself.

If you want to increase sales, you can hire a salesperson and delegate the task of calling customers to them.

But you would still manage them to see that they were finding new customers. If you find that they were not increasing sales and not keeping in touch with customers, you would do something about it, even if you were not an expert salesperson.

So why should you not do the same thing with your bookkeeper or accountant?

But I understand – you think that you’re not financially trained, and your accountant is, so best to leave it to them?

No, you don’t have to be financially trained to master your own finances – you just need to know what to look out for and what to ask and then let the experts help you.

You need to find the right business financial adviser who can help you.

I have a free checklist that you can use to choose a good adviser and you can use this to find yourself a great accountant or work it with your current accountant just to recalibrate your relationship – if you don’t ask, you don’t get.

Now, let’s start a simple 5-day challenge to show you what information is in your financial reports, and what they tell you.

We will start from scratch so I will assume you have no training in accounting or bookkeeping at all.

Are you game?

It will only take you an hour a day for the next 5 days.

On Day 1 I’d like you to understand what reports are available and where you get them from.

Here’s what might be happening in your situation:

  1. You may not keep any books at all other than your bank statements and you just give those and your receipts and payments details to your accountant at the end of the year; or
  2. You may have some software like Xero or MYOB which you or a bookkeeper enters on a regular basis, and your accountant prepares final accounts once a year; or
  3. You may have your software and either with a proactive bookkeeper or accountant you get to see reports prepared by them regularly.

Whatever your situation, I’d like you to list for yourself what reports you get – either regularly or once a year.

Don’t be embarrassed if you don’t know what they are called – usually, the name of the report is printed at the top of the report. We all have to start somewhere.

The basic reports that any system can produce are a Profit and Loss Statement and a Balance Sheet.

But you might also get reports like Accounts Receivable, Accounts Payable, Actual to Budget, and Cash Flow.

All you have to do on Day 1 is to list what you get and what you can get (but perhaps don’t) and spend an hour looking through them to see if you can understand what information they give you.

Don’t worry about what the information means yet – we’ll deal with that later.

As you look through them, one at a time, ask yourself the following questions:

  • What period or date is covered by the report? Can you figure out why some reports give a “from” and “to” date (or a “month/quarter/year” to date) while others are “as at” the single date?
  • What does that report tell me? Is it about the profit or the cash I made? Is it about the assets or liabilities I have?
  • If it is about profit or cash flow, what information is shown on the report?
  • If it is about assets or liabilities – what information does it show?

That’s all you have to do on Day 1 – to familiarise yourself with the reports, to establish a mindset that they’re not black magic and they contain information (even if you don’t understand what that is yet).

You may end up with a list of questions showing you need to understand more than you were able to figure out for yourself, but that’s fine – this just defines what the experts have to tell you.

On Day 2, you need to spend an hour with your bookkeeper or accountant.

But before you do, pull out the Profit and Loss report you looked at yesterday.

You should have a series of questions from yesterday about this report – ask them of your bookkeeper or accountant.

Make sure they explain it to you in a way that you understand. If you don’t, do not shake your head and walk away – ask again and again until you get it.

A Profit and Loss Statement (which sometimes might make more sense if it is called a Profit or Loss Statement) tells you what profit or loss you have made in a given period. It is a report covering a period of time, for example, your Profit and Loss Statement for the period 1st March 2020 to 31 May 2020, or a Profit and Loss Statement for the month of June 2020.

Then, together with them, ask what this Profit and Loss report tells you and how they can help you use it to see what can be done to improve your profitability. What are some simple things that can be done?

Ask questions such as:

  • Is my profit mark-up enough?
  • What if I discounted my sale price – how would that affect my overall profitability?
  • Can I get away with raising my prices – how would that affect my profitability?
  • Should I find a cheaper supplier – how would that affect profitability?
  • How many units do I need to sell to break even (after paying my overheads and running costs)?

At the end of the hour on Day 2, you should have cleared up your “unknowns” and started to think about what the Profit and Loss report tells you and how you can use it regularly to improve your profit.

On Day 3 you will meet with your bookkeeper or accountant again – this time you will discuss the Balance Sheet that you looked over on Day 1.

Again, ask your questions about this report from Day 1.

Do not be fobbed off by answers like “you won’t understand” or “you don’t need to know that.”

Once you are satisfied that you are now more aware of your “unknowns”, ask them to show you what the Balance Sheet means and what does this report tell you about your business.

Your Balance Sheet is a report on what your business is worth. It is a picture – at the end of one day – of the value of your assets, less the value of your liabilities.

Since it is a snapshot of your worth, it is a record of the last day of a period, for example, the Balance Sheet as at 30 June 2020.

Start to explore questions such as:

  • What are your net assets (or net liabilities) – what are you “worth”?
  • What do you own and what values are shown on the Balance Sheet? Are they actually worth those values or have they gone up or down in value?
  • What do you owe people?
  • What do customers owe you? When will you collect these debts?

At the end of the hour on Day 3, you should have cleared up your “unknowns” about the Balance Sheet and have some ideas about how to improve your net worth and solvency.

On Day 4 you will review your Profit and Loss and Balance Steet reports again, but this time, you are going to compare them with another report from the past.

Get a copy of a Profit and Loss report and a Balance Sheet from a past period, for example, this time last year.

Knowing the little you have learned from Days 2 and 3, compare the Profit and Loss report that you looked at in Day 2 with the copy from last year.

Ask questions about any changes between the two periods like:

  • Why has the profit risen this period from this time last year?
  • Why are we buying more office supplies (or whatever) this time than last year?

The answers to questions like these may result from changes you made between the two periods so you can consider the outcomes – was it the right change to make? What can you do to improve performance?

You can also compare the Balance Sheet across two periods and note any significant changes.

Ask yourself why those changes occurred.

Again, noting the causes, you can make some decisions about the future that could improve performance and value.

Day 5 will be a day of reflection and planning.

Spend an hour to consider what you have learned, not only about what your financial reports tell you but also about the knowledge held by your bookkeeper or accountant.

Can you further explore their knowledge in future or do you need to seek more expert help?

How can you develop the learning that you have accumulated in the last 4 days?

One of the ways may be to discuss with your accountant a system to provide you with ongoing useful financial management information. This may involve regular meetings and more frequent reporting processes. Don’t discard this necessity because of cost – explore how you can get the desired outcome in the most cost-efficient way, and think of what value that brings to you.

Make some decisions at the end of Day 5 that will help you stay in touch with the financial performance of your business and ensure that you understand how day-to-day decisions affect its financial performance.

If all this discussion about understanding financial reports is stressing you out – relax!

I’m not suggesting you need to go and do a finance major or qualify as a CPA!

What I’m saying is that you need to obtain a basic understanding of your finances so that you can make effective decisions on a day-to-day basis.

You can hire an accountant, but you cannot leave it to them. You must meet with them, get them to explain the reports to you, understand the meaning of those reports, and ask questions that you can work on to improve your business.

You must do this regularly and frequently so that you can make the changes early so that you improve early.

Meet at least once a month.

Maybe as you become more proficient, you can reduce that frequency and just analyse the computer reports yourself. But whatever you do, don’t leave it until the end of the year.

Believe me, when I say that all of it is within your capabilities, it is – you can organise a meeting with your accountant, you can ask intelligent questions, you can make changes to try things out.

It’s your business – stay in control of your finances and don’t let your finances control you.

Start to master your business finance and get good at it!

Then, to find out more about how you stand in mastering all of the Six Business Success Factors, you can get my free Small Business Owners Growth Guide from here – https://teikoh.com/Guide

See you soon!




Cover image by Lukas Blazek on Unsplash

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