Knowing Your Numbers: The Secret to Your Small Business Success

Accountants love to talk about the importance of numbers, so it’s not surprising that our blog for Small Business Month in 2022 is all about numbers. But with some research, we discovered that the majority of business owners aren't looking at the financials altogether - mostly because they don't understand what they mean. 

For some business owners, looking at financials and understanding their BAS each quarter feels looking at a foreign language - but with our tips and tricks, we hope to turn fear into understanding and appreciation of your business’s numbers.

Why do we need to know our numbers?

I’ve hired an accountant – why do I need to know them?

Well, keeping track of your business’s finances is not just a job for your accountant – it’s your job too! (Sorry!)

If you look closely, your numbers tell the story of your business, and knowing the ins and outs of your story will determine your next chapter. Being well acquainted with your financials will enable you to spot an early warning sign of any potential issues. For example, monitoring how long it takes customers to pay you allows you to quickly respond if that number starts to increase.

But it’s not all bad!

You’re not just looking for the pitfalls and the issues in your business – you can see the positive aspects of your business in your numbers too. Understanding your balance sheet will indicate whether your business value is going up or down, and how to triage and address the issue before it becomes more serious.

What kind of reports do I need to be looking into?

There are a number of reports that are referred to as ‘key reports’ that are the core components to understanding your financials. They are:

• Trading Accounts – track sales, variable costs and gross profit.
• Profit and Loss Statements – track overall performance of the business.
• Balance Sheet – measure the ‘net worth’ of the business at a point in time.
• Statement of Changes in Equity – shows if profits are paid out as dividends or retained.
• Shareholder Current Account – a running record of funds introduced and taken from the business by shareholders.
• Fixed Asset Register – records fixed assets (e.g. Vehicles and equipment).

At any time, your accountant can produce these reports for you and assist you in the process of understanding these reports. It’s important to know that understanding these reports can take time – but taking an active role in your financials is important. Don’t give up!