Some business owners know that they should look at their financial statements, but only do so once a year at the end of the year. They may understand that is the only way to really see how their business is doing financial, but think looking at them once a year is helpful enough.
Plan for the Future
I live in a tourist area which means most of the clients I work with have really busy summers, and really slow winters. As a business owner if you are only looking at your bank balance or end of the year financial statements, you likely have a hard time getting through the slow times. You may be get loans to get you through it, but that can become a never ending cycle in which you never really get ahead.
When you look at your financial statements on a monthly basis you can more easily plan for times that you have less cash coming in. I see a lot of business owners take more money out of their businesses in the busy and profitable months. They may take more out to pay themselves, hire more help that may not be needed, and pay for some expenses that are more of a luxury than a necessity. Then when the winter comes and income is down they don’t have the money to cover their expenses.
You can have more control over your finances if you keep a close eye on them, especially during the months in which income is higher. Then you can easily see the trends in your income and make sure you are keeping expenses down all year long, and not taking too much money out of the business to pay yourself. You may feel like you want to hire more help so you can take more time off in the busy months. Or you want to compensate yourself extra for all of the hours you are spending in your business. Unfortunately for business owners you may not always get to pay yourself what you want to, and especially during the first few years of business, you may not be able to hire extra help or pay for items that may be considered luxuries. Doing these things may then turn into getting a loan during the slow months and paying high interest rates and fees because you needed the money quickly and found the easiest source of money, not the cheapest.
You may still need financial help during the slow months, even if you are keeping a close eye on finances. However, if you are planning ahead you can look for investors or bank loans that have lower interest rates and fees so you can save your business money. Not just looking at your financial statements, but analyzing them also can help you make decisions and have control over your choices, like when and were to get financial help from.