Why do I need to do my bookkeeping? – Part 3
The last two weeks we have talked about peace of mind with your bookkeeping and about cash flow. Today we’re going to talk about profitability. Profitability is the key to your success. At the end of the day, you are in business to make money. Right? Most businesses are, so how do you know if you’re profitable or not?
Is profitability and money in the bank the same thing?
If you are profitable, does that mean you have money in the bank? Sometimes, not always. There are lots of different things that are involved when it comes to looking at your profitability and profitability is very different to cash flow. It’s really important that you do not get confused with that.
If you make business decisions based on how much money you have in the bank, that could end up causing you some big issues later on down the road when you don’t have cash for other expenses that you have not yet paid for.
If you have accounts with vendors, then you need to be tracking them through your bookkeeping system so that you know who you need to pay. If you have loan payments – these do not appear on the Profit and Loss Statement but they affect your bank balance. You need to know when those payments come up each month
Let’s look at profitability. To be profitable means that your revenue is more than your expenses. At the end of the day, if your revenue is less than your expenses, then you’re making a loss. Therefore if you are making a loss, it’s important that you know why you are making that loss.
- Where is the issue?
- What do you need to do to fix the problem so that you are profitable?
- Selling price – do you need to increase your prices on the product or service that you’re selling?
- Expenses – do you need to decrease your expenses? Maybe your selling price and your cost of goods sold are where they need to be, but your operating expenses are through the roof.
So, as you can see, there are lots of different elements that help you know whether you’re profitable or not. The only way that you can know this information is by doing your bookkeeping on a regular basis, at least monthly. When you do your bookkeeping monthly, you get the information that you need to make informed business decisions. You know if you’re profitable, you know if you made money last month, you will know whether you need to make any financial decisions regarding price increases or expense decreases.
Without this information at your fingertips every month, you will not be able to help your company grow to the next level. Mot importantly, you will not be able to make the decisions that you need to be profitable and to make money.
Is this information available to you every month? Do you have peace of mind that your revenue and expenses are in line and where they need to be? If you answered no to either of these questions, then email me and I will help you have this peace of mind and give you the financial tools to make informed business decisions that will help you grow your business. firstname.lastname@example.org