We get it. Finance is hardly the most fun aspect of running your online business. It takes you away from creating products, driving sales, and managing marketing efforts. That’s the fun stuff that leads to cash flow and sweet entrepreneurial glory. However, as you’ll hear us say time and time again, generating revenue is only half the battle. If you want stability and growth, you need visibility into the operational and financial aspects of your business. The only way to achieve this level of clarity is to utilize the financial data your bookkeeper is organizing for you.
With our clients at Evolved Finance, we go over their P&L (profit and loss statement) with them every month so they can see exactly how much money they made and how much money they spent. Seeing this data opens their eyes to a side of their business they simply weren’t in tune with before. If your bookkeeper isn’t sending you a P&L every month, or you’re not taking the time to look at it when they do send it, you’re missing out on valuable insights into your online business.
Knowing where you stand financially allows you to make critical adjustments to keep your business healthy and thriving.
Looking at the P&L every month allows you to find potential issues before they become big problems. While there is no question that trusting your instincts is important as an online business owner, running a business solely on instinct is not wise. You might have a general idea about your cash flow for any given month, but once you see the actual numbers in front of you, it becomes apparent where you can make adjustments to correct profitability issues.
Additionally, you don’t need to have a master’s degree in finance to recognize obvious overspending. If you can see how much total revenue your business generates every month, as well as how much you’re spending to keep it running, it becomes pretty obvious where cash is getting chewed up. You can then make the necessary adjustments to your spending and/or operations and get your profitability back on track.
You can’t plan for future growth if you don’t know how much the business is actually making.
Growing pains are part of building any business, but knowing what to do when they happen is another story. Without financial clarity, it can be tough to determine where you need to invest to better support the influx of business. That’s where utilizing your P&L can be a huge help, allowing you to answer questions like:
- Do you have enough cash flow to hire another employee?
- Can you afford to overhaul your website and e-commerce platform?
- How much can you really increase your advertising spend?
- Will you have to take a cut in pay so you can further invest in the business?
Here’s another way to look at it:
If you were to take a cross-country road trip from Los Angeles to New York City, I imagine most of you would grab a map and use that to plan out your trip. You would probably do this for two reasons: 1) you wouldn’t want to get lost and fail to reach your destination, and 2) you’d want to take advantage of any sights or special locations along the way. This is in essence why having financial clarity is so important for the future growth of your business. Without it, you’re essentially traveling without any sort of a guide, putting yourself at risk for getting lost and missing out on key opportunities to grow.
Seeing your business making money is satisfying!
Entrepreneurs love looking at their numbers when they’re making money. It is both satisfying and motivating to look at your P&L and see that your hard work has paid off. You also get a warm and fuzzy feeling when you see that the business you have created is supporting the livelihoods of others, be it full-time employees, part-time employees, or independent contractors. Obviously, you don’t want to shamelessly bask in your success, but it’s meaningful to know when you’re doing something right. It’s important to not only develop a sense of pride in the amount of revenue you generate, but also in the community of people your business supports.
And, sometimes you need a dose of the truth.
We talk to almost every one of our clients at Evolved Finance on a monthly basis. Sometimes those conversations aren’t easy. If one of our clients sees a negative number at the end of their P&L, meaning they spent more than they made, it’s usually a big wake-up call. They typically know that they didn’t have a good month before we get on the call, but looking at the actual numbers allows them to see exactly why the business lost money for the month. It might sting at first, but our clients tend to bounce back more motivated and focused to get their business back on track.
If you’re lacking financial clarity in your online business, you can make that change. Whether you need to hire a bookkeeper or you need your current bookkeeper to start sending your P&L to you every month, gaining the financial clarity you need to manage your business more confidently and with better insight is just a matter of making it a priority. It could provide the perspective you need to developing a more reliable and stable online business.