In business, profit is one of the most important concepts.
Without profit, there is no reason for a business to exist.
Profit is the reward for running a business.
While it may seem like common sense that profit is the most important concept in business, half of all new businesses fail within five years.
If the failed businesses had enough profit, they would have survived past the five-year mark.
Sometimes we make things more complicated than they need to be.
When it comes to business finance, I think many business owners are ill-prepared by the rules of reporting that both the IRS and the accounting industry dictate.
Many people struggle to understand how to read a balance sheet or an income statement.
QuickBooks has taught them to read something called a Profit & Loss Statement.
This name Profit & Loss Statement is a confusing name.
It suggests that there should be both a profit and a loss.
What sense does that make?
What business owner do you know that wants to have a loss?
Having a loss in business is bad news.
It means that the business is losing money.
It means that the business isn’t earning enough money to support itself.
It means that it is bleeding, and death is just around the corner.
One of the major skills one must learn in business is how to manage the money of the business.
One must learn how to read and understand the financial data of the business.
It doesn’t take an MBA or a CPA to understand the finances of the business.
To start, the first question should be, “Is there cash in the bank?”
If there is cash in the bank, then this is an indication that the business has some money.
Now the next step is to grow the cash in the bank each month.
Here are two more questions to ask.
Is there more money in the bank account at the end of the month than there was at the beginning of the month.
If there is more money in the bank account at the end of the month, then this is a good indication that the business is making money.
If there is less money in the bank account, this is an indication the business has a profit problem.
The first step is to get the bank account balance not to shrink each month.