Learn Your Income Statement
Lesson One: Learn Your Business Statements! As a Business Owner your financial information and business practices must be understood. This information shoul be written by Professional Business Specialists in the field of Business finance. BE PREPARED for an "economic downturn" also called a vicious cycle? Do you know how the economy is affecting your business? If you are waiting to see how the economy will affect your business it will be to late for you to do anything. You must be PRO-ACTIVE NOW! What have YOU done to protect your business from an economic downturn, financial crisis, natural diaster?
Owners who spend more time with their Team than their business are in trouble. Outstanding business managers are great but there is no excuse for any person to know more about your business than you do. An Owner cannot be an "absentee owner coach." YOU must fully understand the finances of your business and be a professional business owner.
2. Do you know what a balance sheet is? Do you know the difference between your balance sheet and your Income Statement, also known as your Profit & Loss Statement? It is your responsibility to fully understand your costs and income. Your income Statement is a snapshot of your Sales (income) - " Expenses = Profit.
This statement is an owner"s bible. It is your report card on your businesses performance throughout the year. It should be used on a monthly, quarterly, semi-annually and yearly basis. By studying your current Income Statement (P&L) and comparing it to your previous years business statements you will learn what is taking place with your business (income/expenses, /profit & loss). You will not be in the dark and there will be no surprises. You must have an Income/Profit & Loss Statement and you must use it! If you use an accountant (and you should) this is something that would be created for your business. Money flows through a company, someone must keep track of it. A good accountant is worth their weight in gold but it"s a partnership between the accountant and business owner to make the correct decisions that equal PROFIT!
Your Income/ P&L Statement tells your business story in dollars and sense over a given period.
From the Income Statement (P&L) some of the things you will realize are:
- The amount of yearly income your business grossed?
- Has that figure gone up or down from the previous year(s)?
- The amount of gross income your business brings in each quarter?
Is there an increase or decrease in your quarterly gross income? Why?
- What are your "strong income grossing" periods (months or quarters)? Why are they strong? Is this consistent each year? What can you do to increase these high-income periods even further?
- What are your lowest income grossing quarters? Why are they the lowest income grossing quarters? Is this lower consistent each year? What can you do to increase these lower grossing periods?
- What trends do you see in your sales? Is there growth? Flat? Falling? Why?
- What can you do as the owner in each of the circumstances?
- Are your business costs rising or falling? Costs rise your price rises to your clients.
Income Streams: revenue producing programs.
Examples: General Gymnastic Classes, Pre-School Gymnastics, Mom & Me Gymnastics, Pre-Team, Competitive Team, Tumbling Program, Warrior Program, Vending Machines, Adult Classes, Birthday Parties, Fitness Classes, Cheerleading, etc.
You must know how much each income stream brings in. You must know how much "profit" each "income stream" produces. If an income stream is a losing proposition why continue the program unless it has a ripple type of value to your business? Break down all income into income streams and track income and expenses for each "stream".
Business Expenses: are General and Administrative Costs.
Examples: salaries, marketing, accounting, finance, rent/mortgage, power, supplies, equipment, maintenance, etc. "Other Expenses" legal, accounting, extraordinary, loans or non-recurring expenses etc. As an owner you must understand how money moves in and out of the company. Every transaction your business conducts represents either an inflow or outflow of cash.
Business Costs/Expenses are broken down (normally) into:
Fixed costs: costs that remain the same regardless of what takes place (do they?).
Variable costs: change monthly
Understanding Income (and expenses) will help you to: (or with the help of your accountant):
- Plan for the "slow income grossing" periods. Layoffs needed? Staff Hours reduced?
- See if your pricing is relevant to expenses. PS: You should increase prices yearly to stay up with increased expenses.
- Learn what your Profit margins are from all "income streams".
- What is your Net Profit (what's left after everything is paid for)?