By: Ruth King
You know that your tools require maintenance to keep them in good shape and reliable.
Your business is a tool that helps you increase profits, build wealth, and live the life of your dreams. How are you using your tool?
Perhaps a more important question, how do you take care of and maintain your business tool?
The answer: Your financial statements.
Your financial statements tell you what is happening with your business. They warn you of potential issues that may arise so you can take care of them before they become major crises.
Good business maintenance requires good financial statements.
And, a part of good financial statements is a budget. However, before you begin to create your 2024 budget, here are questions to ask yourself:
- Are you getting your monthly financial statements in a timely manner? If you are not getting your financial statements within 15 to at most 20 days after the month has ended you are doing yourself a disservice. It makes absolutely no sense to get January’s information in March. By this time any minor issues which you would have seen may have become major crises.
2. Are your financials formatted in a manner that helps you operate your business rather than makes it easy for your accountant to do your taxes? Many accountants put revenues, expenses, assets, and liabilities in a format which makes it easy to do taxes but impossible for you to check your business operations easily. For example, an accountant combined many overhead accounts of one of my clients simply to make it easier for him to track…his reasoning: the client didn’t need that many accounts. My response: Who’s paying who?
You need the information so that you can make good decisions on labor productivity, gross margins, and overhead issues. If your accountant can’t or won’t put the information you give him in a format that helps you operate your business, your goal for 2023 should be to find another accountant.
3. Are your financial statements accurate? This means that you’ve taken an accurate inventory at the end of the year, you have all of your payables and receivables current in the months that they were incurred, and accurate job costing for all departments. Remember that garbage in equals garbage out.
If you need to work on any of these areas, then they should be the initial financial goals that you set for 2024.
Other questions to ask:
4. What are your gross margin and net profit goals?
These are important and an integral part of budgeting for 2024.
5. When you create your budget for 2024 look at what happened in 2023. Did you have revenues or lack of revenues because of situations out of your control (i.e. the economy, the weather, a competitor going bankrupt, one of your top employees going into business and taking your customers, etc.) or did you do some creative referral/marketing programs to generate new customers that caused sales to increase? Make sure you have service contracts/agreements to help you decrease the seasonality of the weather.
2023’s actual financial statements should be the basis for the 2024 budget.
Look at what happened during the year and make reasonable assumptions about what you will accomplish this year. Then, commit to review the financial statements every month with respect to the budget you created. This way you can tell whether you are on track or need to adjust what you are doing.
You are maintaining your business tool.
Ruth King is known globally as the “Profitability Master,” and is a a thought leader in entrepreneurship and business. Her books have been recognized as among the greatest in numerous industries. Learn more about all her business activities here.