3. Don't Fly Blind. It's Risky and Expensive.
Imagine you're a pilot of a small plane. You know the basics of taking off, landing, and the actual flying in between well enough that you've done it a few times. You're surrounded by gauges and measurements, but you don't know what any of them mean. That's okay because this is just a small plane, right? You keep it under the clouds so you can see where you're going. You only fly during the daytime. You're aware that more experienced pilots use their gauges - heck, experienced pilots can actually fly an entire flight on gauges alone. But you're don't have time for flight school, and even though you're a bit nervous about it, you seem to have a system going for flying your own way, using your style, and you haven't crashed yet!
That's the equivalent of running a business without understanding financial statements. You have a sense for whether your company is getting a little too close to the ground by watching the sales activity and the cash balance in your bank account.
The right way to fly is to understand your key gauges, and to look at them regularly. Just because you can see the ground below you doesn't mean you shouldn't check your altimeter. Just because you filled up for gas before you left doesn't mean you shouldn't be watching your gas gauge.
At your business, your income statement will tell you whether you're making any money. Your balance sheet will tell you the level of safety vs. risk in the financial health of your business. The fundamentals for how to run a small business to a reasonable level of success are well known, and one of them is that you need to read an income statement and balance sheet for your business every month, and make a deliberate effort towards trying to understand what they are telling you. (Don't worry, we teach that at The Numbers Edge!).
Receiving, reading, and understanding your financial statements gives you a true picture of what level of success your business is having and where the areas of concern are, which allows you to create goals and make decisions to improve the areas that need to be improved. Financial statements, when prepared the right way, will be a leading indicator of where the business will be in the future. They will show you whether your plane is dropping 100 feet every few minutes even though it looks like you're holding steady based on the view out the windshield.
If you're flying a plane, that means you're a pilot whether you wanted to be one or not. If you're a pilot, you need to learn how to read and use your gauges to keep your plane in the sky.
If you have a business, you're a business owner whether you wanted to be one or not. If you're a business owner, you need to implement processes that result in you receiving financial statements every month, and you need to learn how to read and use your financial statements to keep your business in the right position. Don't know where to start? Email us and we'll tell you what the first steps should be: email@example.com