Reading Between the Lines

April 8, 2020

If you’re like most small business owners, these last few weeks have you more than a little worried about your bottom line. There’s not a business anywhere that’s unaffected by the recent pandemic.

But do you know what the REAL effect on your business is?

If you’re only looking at the bottom line, you’re not seeing the whole picture. Now’s the time to learn how to read between the lines at your financials so you can make good decisions about how, when and where to pivot to make sure your business thrives now and well into the future.

There’s a lot more going on in your business than a quick look at the Balance Sheet or the Profit and Loss statement can tell you.

Just because you’re paying the bills doesn’t mean you’re profitable. Look at your cash flow for the first quarter. If that trend keeps up, how long will you be able to keep things going?

All income is not created equal. Not every product and service has the same ratio of return on investment of your time and money. Where you can, do more of what brings the highest income for the lowest cost.

Is your niche growing or shrinking? Are your products or services facing a growing or shrinking demand? Focus on where the demand is and where it’s likely to be for the next 6-12 months.

Are there opportunities for you in the current climate? If you have an accurate picture of what it costs to deliver various products or services (and where the hidden costs lie), you can decide if it’s wise to say yes to new opportunities. Unless you can really assess the risk, you won’t know if the reward is worth pursuing.

Are there any surprises waiting for you? Look back at your cash flow, annual projections and actual year end results for the past several years. Are there ebbs and flows in revenue that you should anticipate this year? How accurate were you in forecasting your income and expenses in past years? If you consistently met or exceeded your projections, are your positioned to do that again? If you fell short, what do you need to adjust now to avoid an “oh, no!” moment at the end of the year?

Many of our clients come to us not knowing much about their financials beyond whether the bills are paid and the income line is growing. If that’s you, now’s the time to learn to read between the lines on your financial reports. Don’t leave it to the bookkeeper or CPA – they may not understand all the ins and outs of your business.

The numbers themselves only tell part of the story of your business. It’s what the numbers mean and how you get to those numbers that paints the real picture. And nobody knows that better than you.

Read between the lines, then…

Go forth and do great things,

Martha and Chris