Can you imagine entrepreneurs driving on the interstate at 75 mph with blindfolds? They can somewhat feel the road but are helpless to know about dangers around or ahead of them, like the possibility of driving off a cliff. This scenario mirrors the financial situation of many entrepreneurs today who desperately need guidance to regain control of their business’ circumstances.
A first step towards seeing clearly into your business is to ensure your P&L (Profit and Loss statement) reflects the truth by removing distortions. One significant aspect is owner’s compensation, which is often not paid adequately, which can falsely inflate the business’ profitability. Try paying yourself a market wage for your role and then evaluate your business, considering this expense.
Simplifying your P&L is the second step toward clarity. Some accounting reports can be overwhelmingly extensive, making analysis challenging. Instead, opt for a streamlined approach. For example, consider implementing the Simple Numbers P&L, which only contains five overhead accounts.
Lastly, try adopting a rolling 12 format when analyzing your business’ data. This format consolidates the data of the previous 12 months into one total column, offering a clear view of business trends. Using this method, you can eliminate distortions and gain insight into your business’s true performance. A template for this rolling 12 format can be found here.
As always, should you require assistance removing your blindfold, the CRI Simple Numbers team stands ready to help.