Whether you’re leading a business or household, finance basics and quick easy techniques will save you from costly missteps or not sleeping at night.
But if you’re feeling overwhelmed, where do you start? And how do you make this easy?
Start with knowing that once you learn the jargon and time-saving technique, this isn’t time consuming or difficult. So let’s go!
Profit & Loss Statement
A Profit & Loss statement [1] is a snapshot of your business’s financial health in the past. It shows how much money your business made and spent over a specific period. It’s the go-to document for understanding whether your business is turning a profit or incurring losses. Here are the key components:
- Revenue: The money your business earns from its primary activities.
- Expenses: The costs associated with running your business, including salaries, utilities, and more.
- Profit (or Loss): The bottom line that reveals whether your business is making money or facing a financial setback.
Downloading this past information, and then adding new expenses and revenue, will help you make informed, non-emotional decisions about business development, team additions, operations improvements, and more.
Personal Cash Flow Statement
The Personal Cash Flow statement [2] is your household’s financial report. It tracks income and expenses for your personal life. If you ever look at your bank statement and ask yourself, “Where did all my money go?,” your personal cash flow statement will reveal some of the answers. Here are the key components:
- Sources of Income: Compile pay stubs and records from your saving and investment accounts.
- Cash Outflow: Understand where your money is going by collecting all bills and receipts, including for your mortgage, car loan, student loans, utilities, health care bills, all discretionary spending, and anything else that pulls from your available income each period.
- Net Cash Flow: Subtract the outflow from your inflow.Just like the P&L, it is wise to download the past information, add new expenses and income, and see what that tells you about your ability to pay down debt or save for a new purchase or retirement. here are the key components:
Use Tech to do the Work
There are countless tech tools available to help ease financial tracking and journey. Software and tools can automate financial tracking, generate real-time reports, and provide insights without the need for complex manual calculations. This not only saves time but also decreases errors.
Businesses can use software like QuickBooks [3], Xero [4], and NetSuite [5] to easily monitor profit margins, track expenses, and stay on top of the bottom line. This tech-savvy approach empowers leaders to make informed decisions promptly, contributing to the overall success and sustainability of a business.
Families can use software like Quicken, [6] Credit Karma [7], and others to automate the reporting so you can focus on looking at patterns and projecting future cash flow.
Get Proactive with a P&L Projection
It’s pretty simple for most business owners to tell you where they want their firm to go, whether that’s from a revenue perspective or maybe even a branding standpoint. What’s hard is deciding how to get there—and knowing what that’ll cost. The greatest strategies in the world are worthless if they cost you too much to implement.
One-year P&L projections can help you get ahead for the long-term. Beyond confirming that new improvement costs and spending will not break the bank, you will also subconsciously create a more realistic plan that turns your thoughts into successful actions.
To learn more about projections and how to use our IDEOS™ Process to guide decisions, check out our full post on The Importance and Easy Steps to Proactively Managing your Business Finances [8].
Once you’re ready for the next step, resources like Harvard Business Review’s Financial Intelligence Set: What You Need to Know to Succeed (2nd Edition) [9] can help you level up your financial planning, data analysis, and forecasting skill sets.
Sleep Soundly, Breathe Easily
Armed with this knowledge, you can navigate the financial landscape with confidence, whether you’re running your business or your household. By embracing basic financial literacy, utilizing technology, and keeping a watchful eye on both P&L and personal cash flow, leaders in business and in the home can ensure they not only survive but thrive year to year. So, sleep soundly, lead successfully, and let financial literacy be your guiding light.