Why you need to understand the Numbers in your Business

Why you need to understand the Numbers in your Business


Have you ever felt like you are getting sucked into a black hole when you look at your finances? Or maybe you feel like a ship passing through the Bermuda triangle, just bound to end up lost…

You know that understanding your numbers in your business is vitally important, but you just can’t seem to get your head around it. As the owner of a business coaching company, I often come across business owners who don’t understand how to interpret their financial reporting in their business.


Well, here’s the good news… It’s not as hard as you think…


Forget about P&L’s, cash flow statements and balance sheets for a second. Think about driving along the freeway at night time and the dash board of your car goes out. Everything just stops working, what are you going to do? Of course you’re going to pull over and try and get it fixed.


Yet how many business owners are driving their business without the dashboard working? It’s pretty alarming when you think about it. But it’s also understandable. Many accountants are great at what they do, however they (like any industry professionals) tend to speak in accounting jargon rather than plain English. This can get a little bit confusing when they talk to business owners like myself. In fact, when I started my business, I was so confused with the finances that I called it the Bermuda triangle of business because I kept getting lost!


When it comes to finances, there are three things that every business owner should understand; the Profit and Loss Statement, the Balance Sheet and the Cash Flow Forecast. Notice that I didn't mention the bank balance. Judging the performance of your business on your bank balance alone can be dangerous. However, this is how a lot of business decisions are made.


So, let’s look at each of the three areas and understand what they are and how they work together. First of all, your Profit and Loss statement is like a scorecard. Your P&L is like a lap board if you’re in a race car, it shows you how fast you went at the end of each lap. Did you know that you can actually be showing a profit on your Profit and Loss statement and have no money in the bank? Companies have gone broke showing a profit on their P&L.


Your cash flow forecast is like the fuel in your engine. It shows you how much fuel you have in your tank, or in other words, how much money you have in the bank. It also shows you how much fuel (money) you can expect to have in the next 30, 60 or 90 days. If you are on top of your cash flow forecast, you won’t run out of money unexpectedly.


So you’re probably wondering how you can have profit on your Profit and Loss Statement and still run out of money. Well, a there are a lot of things that go on the cash flow forecast don’t show up on the P&L, for example, the lease payment on a vehicle. Say you've got a van that you drive around for your business. That van’s lease payment won’t necessarily show up on your Profit and Loss statement because there are two parts to a lease, there’s principle and there is interest. The interest is an expense where the principle is not an expense so it doesn't show up on your P&L.


Now, depending on the particular financial package you've taken, some leases or purchases are slightly different in the way that you can claim the deduction. So there will always be some things in your business that won’t show up on your P&L. They will show on your cash flow statement as cash out but they don’t go on the P&L.


This leads me to the third side of the Bermuda Triangle… the balance sheet. The balance sheet is like your scorecard for the entire year. It shows you the overall health of your business. It’s not a report that you look at very often, but it is important because it shows you what your retained earnings are and what your equity is. So, what exactly is equity? Equity is all of your assets minus all of your liabilities. The bigger your equity, the healthier your business is!


I honestly can’t stress enough how important it is to know all three parts of the Bermuda triangle of finance. If you don’t have a good grasp of your P&L, cash flow statement and balance sheet and how they correlate, it is vital that you speak to someone who can explain it to you in simple terms.


1 Star2 Stars3 Stars4 Stars5 Stars (1 votes, average: 5.00 out of 5)

Leave a Reply

Your email address will not be published. Required fields are marked *

business plan template

Get Instant Access to the Business Plan Template that has helped thousands of Business Owners in every sector plan and grow their business.

Learn More
fees and benefits

Our Programs start from as little as $10 a day making it affordable for all business types.

Learn More

Top Rated Articles

The History of Business Coaching

The Inner Series...   In order to understand the history of business coaching, it’s important to go back to t


How your company can adapt to the Digital Revolution

Over the last couple of years, technological innovation has brought about a rapid change in the customer service landsca


7 Biggest Challenges Facing Your Business

It is kind of inevitable that businesses will face challenges at different stages of their growth and development. So, p


Recently Viewed

6 Tips When buying a Business Coaching Franchise

Business Coaching is a very lucrative industry if done right. And after being in this space for a few years I can tell y


How to Overcome the Most Common Barriers to Listening Effectively in the Workplace

When it comes to communication, listening actively is a very vital aspect. In the fast-paced world we live in, most peop


How I changed my Facebook Business Page Name

I started a Facebook page for my business many years ago. I had spent thousands of dollars running ad campaigns and gain

  • Over the past 6 months the incredible team at MMP have supported us to shift our attitude towards our business & month on month our revenue is increasing to the point we will be able to employ additional staff to support our business goals long into the future. Do not regret our decision one single bit!

    • Emma Reece

  • Working with my coach has enabled me to see the areas where my business is failing. This was pretty confronting to me to be honest. MMP has the tools to improve these areas and the guidance on how to implement them.

    • Sharon Robinson

  • I have been working with Max My Profit for approx 3 years now, and over that time I have learnt a lot of things about not only what it takes to run a business, but I have also learnt things about myself. I don't believe i'd be the person or have the business I have today if it wasn't for Max My Profit and our Business Excelerator. Great team to work with if you want to take your business serious!

    • Ben Choy

  • As a new client for Max My Profit (MMP) it has taken no time at all to realise the benefits of business coaching. Despite many years of senior management experience starting a new business requires best practice systems and processes built on a solid platform of detailed planning. I look forward to the benefits of adopting the formula being shared by MMP.

    • Campbell MacLeod

  • Max My Profit Are truly awesome at what they do. They have helped me over the past 12 months to get off the tools in my business and start working on my business. I am looking forward to 2019 with enthusiasm not concern. Thanks so much.

    • Aaron Kemp

  • If you are committed to Growth the Max My Profit Team has the tools and expertise to excelerate all areas of your life. They Care, They Listen, They Understand You as an Individual first then they focus on Your business. Thank you Max My Profit my rating is a 6/5 - Kindest Regards The Mr Handyfix Team

    • Catherine Kavadas

  • The team at Max My Profit are an absolute pleasure to deal with. I love working with a team who is on top of what they are doing and have a clear view of what they are working on with you and helping ensure you get to the end goal.

    • Lauren Watts

  • I have been working with MaxMyProfit over the years and what they do for SME's in growing their business is fantastic. Also due to there knowledge and their supporting material for companies across the 5 lifestyle stages and assisting them through this process day in day out is extremely comforting as a small business owner and have referred them many businesses over the years.

    • Steve Laingy

  • Working with a business coach from MaxMyProfit has been one of the best things I have done for my business. I had several other coaches before MaxMyProfit but these guys are a step above the others. I have seen a significant increase in sales, now have a business that can run itself and the coaching program has paid for itself many times over.

    • Matthew Kitchin

  • Much more than just business coaches. There is an absolute treasure chest of business knowledge in their members site.

    • Iain Campbell

  • Max My Profit are unique as they really partner with you to develop and implement a plan that will drive success for the business. I was hesitant to proceed as previous business coaches tell you what to do and rely on you to implement.

    • Michael de Haan

  • I attended one of Max My Profits introductory events in Melbourne. Having been an accountant for almost 30 years, I was somewhat sceptical. Boy was I wrong. I not only enjoyed the presentation, but I gleaned so much from just that session.

    • Daniel Odd

  • These guys are an absolute wealth of knowledge for Small Business. The programme and support networks they have set up ensure learn more every day and can take your business from good to great. Thanks so much.

    • John Butler