I’ve often heard that behind every great business is a great accountant. An expert to ‘do’ the finance. Absolutely – why not? Somebody to explain how your business is working and how to get the best results out of what is flowing in and out of your business. (I have nothing against accountants by the way – mine is awesome). A good accountant will provide a wide range of important services that help to save money, reduce risk, comply with regulation, manage growth and plan ahead.

Being a smart, shrewd and successful business person isn’t just about having a great business brain, spotting a gap in the market or having a feasible idea that you can quickly implement before others do. It’s predominantly about good financial management. Not keeping an eye on the figures can end a business, often before it has even started. As a business owner you will constantly be making key decisions about where to take the business, how to grow the business, what to do next. It makes sense to discuss these with your accountant. However, it would be more powerful if you, the business owner, had a bit more knowledge of what you need to know and how to interpret some of those key pieces of data.

There are three key elements of finance you MUST have in mind at all times. What does your Net Income Statement say, what does your Cash Flow say and what does your Balance Sheet say? There is a brilliant book called ‘Accounting for the Numberphobic’ by Dawn Fotopulos that I highly recommend to anyone who feels a bit dazed by their finances. She gives a great analogy that really helps. “Think about the dashboard in your car.” You have a speedometer (Net Income Statement) – something to check regularly, a {fuel} gauge (Cash Flow Statement) – tells you how far you can go before the juice runs out, and the oil pressure gauge – your balance sheet. Not all that interesting but they identify the health of the business. The book is a brilliant read and, when you think about it, it helps so much to understand the impact of these three finance reports.

Net Income Statement

Also known as the P&L, this document lets you know whether you are making any money. The important figure is often called the ‘bottom line’. If it is positive, great keep going. A zero, you may need to make some changes, but If it is negative, you have an issue. You are losing money and you need to find out why. This figure is what is left when you have paid everything and everyone. I recommend looking at this at least once a month. As per the analogy above –  if this is zero you aren’t moving anywhere.

Cash Flow Statement

For me this is one of the most important tools for business growth and improvement. I look at mine weekly, sometimes daily if things are tight. As I write this, we are about to go into our second lockdown. My business took a big hit in the first one and it doesn’t look much better for this one. So, when the cash stops flowing how do you know if you will make it through? That’s why this is so important.

Going back to the dashboard of your car, in order to keep the business moving you need to fill it with cash. Your business will use cash at differing rates, sometimes through seasonality, sometimes through investment and sometimes because you aren’t keeping a check on things. This report will highlight this to you and allow you to see where the pinch points are. Forewarned is forearmed, therefore, you can do something about it.

On the very positive side, you will also see when the reserves are growing, allowing you to make strategic decisions about investment. Or, as the last 6 months have highlighted, beyond anything else, do you have enough in the bank to keep your business afloat for six to 12 months with no income.

Balance Sheet

This report gives you the overall health of the business. It takes into account any outstanding debt and liabilities the business has and also assets the business owns. Essentially you need to make sure that you own more than you owe. That’s what makes you attractive to investors and that’s what will keep the business sustainable. As a snapshot in a moment of time this report is visited less frequently. I must caution you though, ignore it at your peril.