How do you Know?
What motivated you to start your own business?
I have asked this question to about 100+ entrepreneurs and NEVER ONCE has anyone ever said “because I want to know what a balance sheet is!”
The answers I do get, talk about passion, service and getting fulfilment out of the work they are doing. Something I wholeheartedly agree with and work with my clients so they can achieve this. I know how easy it can be to get stuck in the day-to-day running of your business and forget to look at how your business is performing or even if you are heading in the right direction.
“Think of all the amazing things you could do today if you knew you had the money, if you could plan ahead knowing where and when the money was coming!”
As it comes to the end of the year, it is a good time to look back and see, with your numbers, what you have achieved in 2022.
I want to share with you today, the 3 simple calculations you can do, to visually see how your business is doing.
Here we look at the heart and lifeblood of your business. The money, understanding how it comes in and out of your business is key to understanding and controlling it.
What was your total bank balance at the end of 2021?
What is your total bank balance at the end of 2022?
Make sure you add in all your bank accounts, Stripe, PayPal, goCardless and all the others out there!
Let’s work through an example:
Your bank balance was €15,493 on 31st Dec 2021 and it was €21,534 on 31st Dec 2022 using a simple percentage ratio:
Current Year / Base Year x 100 %
Using the balances above:
139%, which means, we are 39% above our balance from last year.
Don’t worry if your bank balance is less than last year, you will get a number below 100. The main thing is to know why. If you invested in training or equipment, it might be reasonable to have less money.
If cash is the lifeblood, sales would be the oxygen. Often this is one that you will have in your head. Most entrepreneurs
I know, can tell you every which way the detail behind their sales. Yet, there is something very powerful in writing it down and working our the percentage increases (or decrease)
Using the same formula as above, take your sales total for 2021 and your sales total for 2022 and work out the percentage growth.
Using the numbers as follows: Sales for 2021 €85,790 and sales for 2022 €105,320, we can work out the % growth as follows:
Sales are up 23% from last year. How happy are you with this figure?
Expenses are the body of the business. You need to nourish and maintain the body to have a business.
This is the one that often catches my clients out. They have complete handle on sales, a little handle on cash and often they run out of steam when it comes to the expenses. A large part of this is due to how we spend and buy our supplies, we have many different exit routes, business card, credit card, signups, cash not to mention bank transfers. You probably have a good handle on the ‘big’ purchases but often the smaller ones can be missed.
Again, using the same formula as above, work out what your expenses are for 2022 and compare to 2022.
Expenses for 2021 were €43,258 and expenses for 2022 are €75,326.
Working out the percentages as we did above:
So, based on the numbers above, expenses are up by 74%, what does this mean? Like your bank, did you make some big purchases during the year?
When we run the numbers in your business, what they tell us individually is one thing, but the magic happens when we cross reference them.
Did we make a big purchase in expenses, is this why our bank is up or down? We increase sales by 23% but expenses went up by 74% why?
Questions your number should prompt include:
- Where am I in terms of meeting my goals set for 2022?
- How am I measuring success? Remember, measures of performance may change as your business matures.
- What are is my return on investment
- How does my expenses in line with my sales look like?
- Am I heading towards burnout?
- What needs to change now to meet my goals for 2023?
The numbers in your business hold the key to how your business is performing. They are the words in your story. As a business owner you need to know how to read the numbers in a way that makes sense to you and your business.
The numbers offer you insights. They are a carrot, not a stick so don’t be fearful of what you find out. They are the information the compass on your road to success.
If you follow simple calculations outlined here, not only will you get excited about your business for 2023, but you will also empower yourself with a solid framework to have more clarity and peace with your numbers and be set up to maximize your profitability.