When You’re An Expert At What You Do, But Not In Running A Business
I’m going to tell you a secret I haven’t told many people. I Googled examples of what to put in the business plan section on my loan application for the bank. I had no idea what I was doing- I was lost in a world of
My expertise is in Pilates, not things like profit and loss statements.
I knew I wanted to own my own studio, and that I’d be good at it! But I had absolutely no idea about the business side of it. I knew I needed a business loan, but also knew that I needed a business plan to get a loan.
Google became my best friend and teacher. I remember throughout the loan process our loan officer would ask for more projections and more spreadsheets, and it felt like I was just making it all up.
Finally, we got a call from the bank and our loan officer said, “Guess what? Your loan has gone to underwriting. You’ve done great, now go get some rest.”
I could tell from the sound of his voice that this was good news. I turned to Google and searched for the key words, “What is underwriting?” Thankfully, the bank saw the big picture through the weeds of my naivete and I was able to open my business!
During the first year, I struggled with understanding my cash flow. I couldn’t understand why there were times when I was so super busy yet there was no money in the bank. But then times when business was slower, I had plenty of money in the bank. It made no sense to me. Thankfully, a close friend heard my (somewhat desperate) cries for help and worked with me to figure it out.
Why Messy Bookkeeping Makes Things 10 Times Harder.
- 1Identify the areas where you could be saving money, as well as opportunities for generating more revenue
- 2It tells you whether your company’s financial performance is positive or negative
- 3Reveals trends in your financial performance over time.
- 4If you stay on top of your profit and loss statements on a monthly basis, it makes your bookkeeping accurate in real time. (This will save you big time when you go to do your taxes!)
- 5It helps you figure out which activities are helping you make a return on investments, and which ones are resulting in losses.
This was all very eye-opening and helpful to me. But I still wasn’t organized when it came to all of my financial stuff. That’s when I learned about the 3-step cleanup.
Easily Manage Your Profit and Loss Statements With This 3-Step Cleanup
In order to ensure the reviewing of your profit and loss statements is as easy as possible, it’s highly recommended to utilize these 3 organizational steps.
- 1Delete Irrelevant Categories - oftentimes bookkeeping software comes preloaded with default categories you may not use. Go to your Chart of Accounts and delete the categories you aren’t using or that don’t apply to your business. (You won’t mess anything up as long as you’ve never assigned a transaction to them!)
- 2Condense - comb through your categories and see what you can condense. For instance, you may have one category for supplies and one for materials. You’ll have to change the transactions to the new category, which can be time consuming if your software does not allow for a bulk operation. (QuickBooks does) But it will save you a lot of time and frustration in the future!
- 3Rename Categories and Be Specific - A category named “supplies” is too vague. Rename it so you’re clear on what is supposed to go in that category. For example, a boutique fitness studio may have one category called “office supplies” and one called “studio supplies.”
Being as organized and specific as possible will be quite beneficial in reviewing your profit and loss statements each month.
The Bottom Line
So there you have it. You now know that you’re definitely not the only one who has difficulty with understanding their profit and loss statements, cash flow, or any of the other business-related bookkeeping activities. Organization of your categories and checking the profit and loss statements monthly will go a long way in keeping things running smoothly.