Money Mastery: How to use your Financial Statements for Success?

When we talk about the six steps to build a better business, the foundation step of mastery is key. Successful entrepreneurs get the foundations right. They master their goal-setting and set the course for their business destination. They master their time and the way they deliver the product or service to the consumer. And they master the money side of things.

And that’s what we’ll talk about here.

Money Mastery.

This is not necessarily about just making lots of money. Money Mastery is about knowing and understanding where your money comes from and where it’s going.

Often, bad money habits are formed early on in business when there isn’t much money around. The habits stick as the business grows and the financial management side of the business is out of control.

I remember chatting to a client early on in our client-coach relationship. He had a turnover of $1 million dollars. The business was growing well but he was losing money. He had no idea where his money was going. This is what he said to me:

“When you make a million dollars you end up with a million problems.”

He thought the problem was the fact that he was turning over more money. That wasn’t the case at all. It was the way he approached his finances that was causing the million problems. He hadn’t got his Money Mastery in place before the business took off.

As the business grows, if you don’t learn how to manage your cash flow and income, you won’t have any control over your finances. And the bigger the numbers, the bigger the headache.

So, to establish your level of Money Mastery and highlight any gaps you may have, ask yourself these questions:

Do you review your monthly profit and loss statements? More importantly, do you understand it? If you don’t, call in an expert to help you unpack the statement line by line.

Do you have a weekly cash flow forecast that looks at least three months ahead? Ever been stung by an unexpectedly high BAS payment? Or late payment? Cash flow forecasting helps you identify possible issues allowing you to set contingency plans in place. It also allows you to make the most of your cash balances….you don’t want a nasty shock but you also shouldn’t run a lazy balance sheet!

Is your balance sheet up to date? A balance sheet gives you a good picture of the financial health of your business. Banks love an up to date balance sheet!

Do you know what your breakeven point is each month, week or day? So many business owners get to the end of the financial year and only then realise that they haven’t broken even. What’s the point? That’s not what you started this business for. Understand breakeven points and the importance it plays in your financial future.

Is your cash gap under control? The cash gap is the amount of time between paying out money for the product you produce and receiving money for the sale of the product. The shorter the gap, the healthier your finances. Click here for more information on the Cash Gap. Do you issue invoices quickly? And follow them up? This helps with your cash gap. The sooner that money is in your account the less interest you’re paying on debt or if you’re debt free, the more interest you’re receiving. Set robust payment terms and stick to them.

Many business owners are mistakenly under the belief that more money means more headaches, but they’re the business owners who haven’t set the right foundations in place or mastered their money activity early on.

If you feel your finances and your business is growing out of control – literally! – remember it’s never too late to learn Money Mastery techniques.