It always amazes me when I start working with a new client how little they know about how their accounting system works. They have often hired a bookkeeper and/or a CPA, hand over the bookkeeping functions and never look back. The problem is that anyone you hire is not invested in your company the way you are. You need to understand your business and the accounting side enough to know when something is amiss.

Large businesses hire CFO’s and CEO’s because that person has a vision to take the company in a profitable direction. These people don’t just tell upper management what the vision is then sit back and wait for it to happen. They have learned how to read the financial reports that give them feedback on how the vision is being implemented.

It is the same with a small business. In order to grow a business you must have a good understanding of how to read and manage the financial aspects of your business. You also need to learn, just as the big boys do,  how to compare your company to others in your industry and what each of the numbers mean. If you don’t know that in your industry it is expected that you will pay 20% of your income out as payroll then when your payroll figures are at 40% of revenue you will not be ready and willing to make changes to either increase revenue with the same number of people or look deeper to see why your numbers are higher. Sometimes there is a legitimate reason they are higher, other times you have an employee embezzling money through payroll but usually your employees are not being as effective as they should be in generating sales or you could be in a growth mode and have a plan for the numbers to even out.

The key is to know your numbers well enough to know when something is going wrong but also to know if a product or service is doing much better than expected. If you don’t know that service A is bringing in 70% of the profit you will not know that you need to either take advantage of that and advertize that more or that you need to bring the other services up or create new services so your business is not dependent on one item.

When was the last time you analyzed your reports or sat down with your CPA to discuss ways to make your business more profitable? Do you know how to read your financial reports? If not you can call us today and we can help you learn, the best way to grow a business is to make informed financial decisions.