“It is called a what coach?” my new wide eyed business owner client asked.
“ A P&L Statement” I replied. “You know, a profit and loss statement.”
“Not really sure what that is but I am guessing we don’t have one.” She replied somewhat sheepishly.
“No actually we do have those” her business partner offered with a hopeful smile on her face.
“But …… we don’t actually look at them until the end of the year with our accountant” she stated.
So we dug out the last quarters P&L statements and much to my dismay, and their horror, they had lost a substantial amount of money in two of the past three months giving them a very bad loss for the quarter.
“I don’t get it” the one business partner said out loud. “I thought things were going well? We are busy and there are lots of clients coming and going so we even gave ourselves a raise a few months ago.”
As soon as my jaw got picked up off of the floor I got down to work explaining to these two wonderful, but very financially naïve entrepreneurs, some of the many reasons they needed to do a better job at being the CFO (Chief Financial Officer) of their little company.
Let’s review some business basics;
The philosophical purpose of your business is to let your authentic light shine and share your unique gifts and talents in the form of your products and services with the rest of the world.
The economic purpose of business is to make a profit. With that profit you feed and clothe your family, and/or provide an income for the team members you may choose to work with. With that profit you can invest in other products and services that your other brothers and sisters of the world bring to the world that is their gifts and talents.
Revenue represents the sum total of all the products and services you exchanged with the world for dollars.
Expenses are the legitimate/expenses/investments you had to make with others in order to bring your products/services to the world.
Profit is the difference between the two. The higher the profit the more you can invest in other people’s products and services that you value to enjoy your life and live life fully.
Creating revenue projections based on historical data from your past business experience (or from past business experience from others in your field) gives you the basis for projecting everything from how many team members you may need to support you, to the amount of inventory you need to carry, to the ability to invest in other things for your business to help you grow.
Projecting expenses and the ultimate profit that will be produced, allows you to run the most efficient business possible while planning for cash flow highs and lows in the year based on due dates for quarterly or annual investments/expenses for the company.
This allows you and your team to plan for things on the personal side relative to quality of life, holiday time and planning capital purchases for your own homes.
Monitoring the revenue, expenses, and profit IS THE PRIMARY JOB OF THE CFO of your company.
If that is you because you are the CEO, CFO, President, Chief of Operations and head bottle washer all rolled into one, you had better get familiar with the terminology and learn the skills of planning and monitoring the revenue, expenses, and profit of your company.
Why this is so important is because of the ripple effect of NOT doing it.
Your team is counting on you to lead and drive the company so they can contribute their skills and talents but also so they can plan their personal lives and feed their families.
Your family is counting on you to do a good job so you can continue to feed and clothe them, and contribute to their growth and development through paying for sports, hobbies, University or family holidays.
Your clients are counting on you to KEEP YOUR DOORS open and not have a banker or the sheriff come and put a lock on your doors because you went bankrupt. Without your valuable contribution to humanity their lives would not be as fulfilled, meaningful and/or healthy (depending on what industry you work in).
Knowing if you can and should give yourself a raise is another important reason to monitor your P&L each month. Knowing whether you have the cash flow to front a capital purchase, give a team member a raise or pay down debt are just some of the many other reasons you should be monitoring your P&L at least monthly.
I hope and pray as a result of going over this little business math session that you and your team will never have to endure the agony of having to lay off a valuable team member, not pay yourself for the valuable service you offer the world, or worse yet… close your doors!
If you would like to review our famous Business Lifeplan Intentions Sheet (BLISS) and/or set up a meeting with one of our qualified coaches to review your business from an economic and/or philosophical standpoint to see how it could be more profitable, please just click on the “book a call” button below.