Spring Cleaning for Financial Reports

Spring isn’t just about sunny days; it’s also a crucial time to tidy up your financials after tax season. While your accounts may look temporarily polished post-tax filing, maintaining this clarity is a year-round challenge. Many business owners face daunting tax bills and erratic cash flow, leading to financial stress that is both unnecessary and avoidable.

Key Steps to Financial Mastery

1.      Understand and Organize Your Financial Reports

• Monthly must-haves: Profit & Loss as a Percentage of Revenue, Balance Sheet, and Budget Variance Report.
• Focus on key ratios on your P&L, such as Gross Profit Margin and Net Profit Margin, and set targets that reflect your actual cash compensation after taxes and debts.

You likely excel in delivering your products or services but falter when it comes to the financial aspects. Often, you haven't been taught to leverage your financial statements effectively. Business owners tend to focus on raw dollar values, instead of percentages and ratios—which truly reflect their business health. Owners will not openly admit they lack numbers confidence. 

2.      Set Realistic Net Profit Margins.

• Revise your Profit and Loss (P&L) statement to accurately represent your true earnings by accounting for taxes, debt repayments, and necessary reinvestments for growth.
• Establish a realistic profit margin that enables sustainable business expansion while ensuring your paycheck remains unaffected.

It's important to remember that the net profit figure on standard P&L statements—often structured by accountants for accountants—doesn't reflect the actual take-home amount. This is why I recommend regularly monitoring a genuine Net Profit Margin tailored to your business’s financial reality.

 💡Take Action: Start with the end in mind. Build a budget forecast to clear the fog around your finances, set a profit target for each month, and systematically work towards it.

3.      Pay Yourself Competitively Without the Guesswork

If you find yourself skipping paychecks to manage cash flow, you're not alone:

• Remember, as a business owner, you shouldn’t always be the last to get paid. Implement strategies to manage cash flow effectively, ensuring you receive a market-competitive salary.
• 51% of business owners forego their salaries for months to keep their business running.
• Nearly 50% of American business owners earn less than $100,000 annually.

A well-crafted plan is key to realizing your aspirations. Start by developing a realistic 12-month financial forecast and consistently compare this projection to actual monthly results. This single financial report will provide you with clear insights, enabling you to make timely adjustments to maintain profitability and ensure you are compensated competitively. By doing so, you can steer your business toward sustained success and personal financial security.

Client Spotlight:

Ben, a client from 3P Consulting, struggled with misleading profit figures. After adjustments, we aligned his financial reporting to more accurately reflect his cash position, increasing his profitability and easing financial stress.

“My P&L shows a net profit of $100,000, but I only have $10K in my checking account and I DID NOT pay myself the other $90K. Where did it go?” -Ben

In Ben’s case, we adjusted the net profit number to account for debt payments and taxes, leaving him only $39K of income. This was nowhere near the $100K listed on his P&L, nor his desired income of $125K.

To rectify this, we backtracked and set benchmarks for revenue, cost of goods sold, and gross profit margins, while closely monitoring his top three to five expenses. Through these measures, we redefined his financial baseline to $190K net profit on $3 million in revenue—a modest 6.3% net profit margin. Over the next three years, Ben aims to achieve a 10-15% profit margin.

Closing Thoughts:

With three decades of corporate banking experience and four years leading my own financial coaching practice, I’ve analyzed over 10,000 financial statements from more than 100 industries. Rest assured, nothing in your financial reports will surprise me. Remember, there’s absolutely no shame in seeking assistance to master your business finances. The key to substantial business growth lies in taking consistent, small steps. Stay proactive and dedicated to continual improvement.

About Patrick: As a veteran in financial coaching with over 30 years of corporate banking experience, my mission is to empower small business owners like you to become numbers confident, optimize cash flow, leverage debt, and pay yourself competitively. Please follow for more insights and subscribe to my bi-monthly newsletter

Profit Accelerator Resources: Whenever you are ready, here are three ways I can help you:

1. Financial Dashboard Workshop: Become proficient with your business numbers in just 30 days.
2. Business Plan Workshop: Craft a compelling business plan to secure funding and fuel growth.
3. Profit Accelerator Program:  Unlock hidden profits in your business-- ranging from $25K-75K-- in just 30 days, with full implementation spanning 3-12 months.

Ready to elevate your financial strategy? Let’s connect and discuss how you can run a thriving business and pay yourself competitively.