The first quarter of the fiscal year just came to a close and it’s the best time to review your business financial statements. While this may seem like an obvious thing to do, most people think of reviewing their financial documents as fun as washing dishes. However, there’s a lot to be learned from washing dishes.
There’s a Buddhist teaching that says, “Wash the dishes to wash the dishes.” I learned not to whine about doing the dishes from a poem my mother had by the sink, “Thank Heaven for Dirty Dishes.” And in this article in The Atlantic, “Doing the Dishes is the Worst,” Dan Carlson, an assistant professor of family and consumer studies at the University of Utah, wrote dish washing, unlike other chores such as cooking or gardening, “does not beget compliments, he observes: ‘What is there to say? ‘Oh, the silverware is so … sparkly?’”
What does dishwashing have to do with reviewing business financials? Nobody is going to say to you, “Your spreadsheet is so pristine!” Yet just like dishwashing, there’s a lot to be learned from reviewing your financials.
In reviewing your statements at the end of the quarter, you want to review, adjust and move forward. You do it so that your business can be in a good competitive position. Here are three easy tips for doing a quick review of your business financials.
1. How much money do you have? (Balance Sheet review)
Personally, verify how much cash you have in the bank. Make sure the cash amount in the bank matches what you have in QuickBooks or the software program you use.
2. How much money did you make? (Profit & Loss review)
Compare what you actually made to what you expected to make. This is fairly easy to do in QuickBooks or a financial software program.
Compare each line item to see if you were over or under budget. Document significant differences either +/- . Jot down a memorable note of why this line item was over or under budget. Take a look to see if you have been setting aside too much money in a category or there’s another category where you constantly run out of cash each quarter. If so, consider changing how much you have allocated to each line item in your budget.
I had a client who set aside $1,200 for marketing and only spent $950. Once she noticed this difference, she decided she was underinvesting in sales. She began spending the full budget of $1,200 and saw sales improve in the next quarter.
3. Can you borrow money if you need to? (Credit Score review)
Compare your credit score to the credit score you had last quarter. Note significant changes +/- and if it’s not above 720, set goals to work toward a 720 score or better. I’ve seen business owners with excellent cash flow, but a poor credit score keeps them from growing their business.
Just like doing dishes, reviewing your financial statements isn’t the most fun task to undertake. But doing these three quick tasks at the end of each fiscal quarter will ensure your business is successful and growing well into the future.
Liz Lemesevski helps small business owners and non-profit leaders build a strong financial foundation to attract lenders, investors and donors. She started her company, The Money Native, to help non-traditional business types shape their organization’s bright future. She specializes in profitability metrics, cash flow improvement, budgeting, capital structure, financial statement analysis, and competitive analysis.