Managing Small Business Finances: Your Loss and Profit Formula
With the year half-way mark approaching, it’s the ideal time to check in, on how you’re managing finances. Note that I said: “how your’re managing.” I’m not even worried about the actual results yet. At this stage, I want to know about your money habits: how you’re managing small business finances.
When speaking of Ellevated Outcomes’ philosophy, I often say:
We don’t tell people what to think. We teach people how to think.
And it’s such a passion point of mine, to help small business owners learn how to think about money. Afterall, the point of having a business is to make money (it’s okay; you’re allowed to want to make money)! Otherwise it’s a hobby.
So call me old fashioned, but the best way to master your money is to really own your P&L. And by “own your P&L,” I mean: you must deeply understand the loss and profit formula.
Most business owners who come to us, do indeed know the Accounting 101 formula: Income – Expenses = Profit.
BUT do they really understand it? The litmus test for this is: can you construct one? If you know how to organize, line up all the bits and pieces, and can take it apart and build it back up, then you understand it. So by this definition, forget about small business owners; most “big business” people don’t have full P&L ownership.
I believe that whether you’re acting as your own bookkeeper or outsourcing these duties, you must know how to construct your P&L. As a matter of fact, within my own Strategist portfolio, I make many of my clients complete a summarizing, Controller-version of their P&L each month, after their bookkeeper has done their job. It’s how I keep detailed tabs on their business and how I force them to become intimate with their own numbers. This is how you really learn your business: the nitty-gritty of how you make money and the money-so-what: how to make smart forward-looking decisions: where to shrink, maintain, and grow for your brightest, clearest, future.
So with that, I’m so happy to share with you my P&L template. I suggest that you complete this during the second week of each month, whether you have a bookkeeper, or you are your bookkeeper. Enjoy!
PS – because we work with lots of interior designers, the second tab is a customized version for you.
