Since declaring this the year of numbers I’ve paid much more attention to the financial health of my business. And as a result, my business has been much more financially healthy.
And as the year draws to a close, I’ve been spending a lot more time staring at spreadsheets. (My bookkeeping method involves a combination of outright.com and a much more detailed Excel spreadsheet.) I’ve been staring at my spreadsheets because, while they are a picture of the last year of my business, they’ve got a lot more to tell me about how to run my business in the future.
Here are some of the most important things I’ve learned about my business by tracking my numbers:
1. The minimum cost to run my business. It costs money to run a business, but everyone’s business has a different set of expenses. Running a product-based business requires a lot of overhead. In order to successfully make a profit, you have to understand how much it costs to run your business every month. Now that I’ve tracked my expenses in more detail, I know what I need to bring in each month just to break even.
Of course, you don’t want to run a business just to break even. Which is why my spreadsheet has helped me come up with an even more important number:
2. The minimum amount of money I need to bring in each month to not feel financially panicked. The money I make from my business isn’t my only income – I also teach part-time at a university. But my teaching income isn’t consistent enough to cover my bills every month. Some months I make more than others, and some months I don’t teach, and don’t get paid, at all. In those months, I rely on the business to support me. (Full disclosure: Yes, I am married, so I don’t have to pay all the bills myself. But we also can’t live solely off my husband’s income. We both contribute to paying the bills each month.)
But what I’ve learned from tracking my numbers is what my gross income needs to be each month to not feel panicked. Adding my teaching income into my spreadsheet allowed me to get a fuller picture of my financial health, as well as the financial health of my business. Now, I have a target goal for total income. Which means if I don’t teach certain months (or start to cut down on my teaching) I know the number I need to reach to make that realistic.
3. Which months tend to be slow, income-wise. One of the other things my spreadsheet tells me is which months tend to be slower from an income standpoint. This is critical information as I plan for next year. I’ve learned that the month or two before a major trade show tend to be the tightest, whereas I bring in the most revenue for several months following a show.
Understanding these numbers means I can start to plan in advance for months that might be slow. Knowing now that July is probably going to be a tough month financially means I can start to think of creative ways to boost my income now, so that I don’t feel panicked when that time comes.
As the year draws to a close, I’ll be spending even more time crunching the numbers. I want to take an even closer look at the profitability of certain product lines and effectiveness (from a profit standpoint) of various marketing efforts.
And I’m not just doing this for fun, even though I do enjoy it. (What can I say, I’m a nerd – and proud of it.) The better I understand the numbers behind my business, the easier it is to make decisions.
Even if you don’t want to dive into the details like I’m planning on doing, understanding the basic financial picture of your business can go a long way in helping to make your business more successful.