Focusing on the Figures

I think we would all agree: finances are one of the most intimidating parts of running a business or a household. Even though I have been a business owner for more than 20 years, I still get stumped from time to time on certain tax forms and the “right” way to do something when it comes to my business or my household dollars. Since the COVID-19 pandemic, so many people have started cool new side hustles and businesses! When sitting down to write this article, I became overwhelmed with the need to share my own struggles with owning and running a successful small business. 

If you’re anything like me, you are way more excited to work on creating a great product or approach or launching a powerful marketing campaign (swoon…I love the marketing part) that will boost your sales, but unless you know your numbers, your business is on shaky ground. Considering we built these things with our blood, sweat and tears, it’s sometimes painful to consider the grey area of what “could be.”  What “could be” if we just cozied up to our business numbers? Chances are, we are all leaving time and money on the table. 

Since starting my own insurance business, I have had the opportunity to work with hundreds of business owners across this great state. From retail ownership, to photography to virtual assisting, we all have brains that swirl with what needs to get done before our feet even hit the floor in the morning. Ultimately, this can be overwhelming and paralyzing. 

While I do believe there are a few essential numbers every CEO must know and understand, I don’t believe you need to get a finance degree in order to run a profitable small business. Did we just become best friends? I hope so! 

If your money sometimes has you wanting to pull your hair out as well, read ahead. 

Let’s first look at your revenue. This is the total amount of dollars you have brought in from all income streams. That can be services, products or other passive streams of income. Think of this as “dollars in.” You can keep track of this with a bookkeeper, like I do, or just jot these numbers down on a piece of paper. Obviously, the bigger you are, the more tedious this process can be.  

Secondly, there are the expenses. Expenses go by many names and can get out of hand quickly if you’re not careful. They can be referred to as Job Costs or more commonly, Overhead. Think of expenses as the “dollars out” of your business. Expenses go to pay to actually produce your goods or services, including labor costs and of course, insurance. Right before I started writing this article, I was scurrying around, digging up old receipts trying to get as many write-offs as I can as I prepare for tax time. 

Here’s the thing, though…expenses are not just important to understand at tax time. Expenses tell us a TON about our businesses! If you’re spending too much on each project that means your price either needs to go up or your costs need to go down to produce a profit. Let’s print our bank statements and get highlighter happy! (Oh, and make sure you have a separate bank account for your business. This makes it easier and faster to track finances.)

Ahhh, profit. Let’s talk about “the leftover.” It is simply total sales minus total expenses! You need to know how much money your company has left after “running it.” This is not only an important number to the IRS as they determine how much income tax you’ll owe from the business, but an important number that matters to everyone. At the end of the day, I want my company to be profitable. 

I see a lot of creative and fun entrepreneurs these days (especially in this age of social media) throwing around lots of fancy-sounding dialect around money, but don’t be fooled. There is a huge difference between six figures of revenue and six figures of profit. Profit is like balancing the checkbook. You always want to make sure your ending number stays positive and not negative. 

Here’s the deal: you don’t have to be an accountant or understand the IRS handbook, but as a business owner, knowing and understanding your numbers is essential to working smarter but not harder. I have no doubt that even as a “non-money” person you have the ability to understand the few essential numbers you need to run a profitable business!