Some of us start our business with a particular purpose in mind – to solve someone’s problem, realise a brilliant idea or make money from a hobby. The way you begin doesn’t determine business performance, but can determine the stage of financial knowledge you are at.
There are five stages of business financial knowledge. It doesn’t matter whether you’ve been in business for one, three or five years; you could be in any one of the five stages right now. And it’s up to you how long you stay in each stage.
Stage 1 – Busy Beginner
You start a business; you’re doing your thing and very busy doing it. So busy, in fact, that you have no idea about all the other business stuff that needs to happen. You are flying blind when it comes to your business operations.
You probably feel like your business is great on the surface – your clients love you, your peers are raving about you, you have a great community – but the most you know about the financials of your business is how much money you have in the bank (or not).
You complete the bare minimum obligations so as not to upset the tax office, and just in time for lodgement. Your tax accounting bill is usually quite high as it has taken your accountant a long time to sort through your “slapped together” records.
Stage 2 – Fearful Maintainer
Fed up with the last minute rush to meet your tax obligations and knowing how much you hate it, you have decided to hire a bookkeeper to get the necessary work tax accounting done.
You’re still incredibly busy in your business and guided by how much money you have (or don’t have) in your bank account.
When your taxation accountant tries to explain your year-end taxation numbers to you, your eyes glaze over. You are fulfilling your obligations tax wise, but really in survival mode.
Stage 3 – Do the Right Thing Reviewer
You no longer get your bookwork completed for compliance reasons; your bookkeeper completes it at least monthly and delivers financial reports, such as profit and loss and balance sheets.
If your profit and loss shows a profit, you give yourself a pat on the back, but then ask yourself, “where’s my money”? Or it shows a loss and you think, “yikes, where can I cut expenses?”
You are doing the right thing in reviewing your financial results regularly. You look at your bookkeeper’s reports and listen (because that’s what you’re supposed to do!), but you still don’t have much of an idea of what’s going on.
Stage 4 – Inquisitive Business Owner
Sick of flying blind and not understanding what your business results mean, you want to know why your cost of sales is higher than last month and move into the next stage. You start to ask questions, not because you should, but because you really want to know the answer – you want to understand why the numbers are changing (or staying the same). What are the drivers of those numbers?
You seek assistance in understanding why you have the business results you do and how to go about changing them.
Stage 5 – Lightbulb Action
Now you have an understanding of your business numbers and what drives the results, you have the knowledge to make changes to improve business performance. This involves less working “in” your business and more working “on” your business.
You see the importance of your business numbers and how the data can be utilised to measure, analyse and interpret many things.
What stage are you at? Perhaps you find yourself in more than one stage. Don’t worry, there is a way to move through them; it just requires your commitment. Are you ready to commit?
If you feel you would benefit from my personal attention in coaching you through the five stages of the business financial cycle, then please contact me at firstname.lastname@example.org.