My husband and I owned a business in the construction industry. We learned very quickly the importance of separating and tracking our multiple revenue streams. That data was invaluable during the cycles of the economy. For example, we learned that when larger projects were difficult to bid and win, it was our smaller jobs and annual inspections, which kept the company profitable. That may sound like an easy piece of information to determine however its not. There’s no other way we could have known this besides our up to date accounting. We wouldn’t have known that our profit margin in the smaller projects was consistently higher than larger projects.
With the knowledge of these sectors of our business, we began using more of our marketing budget towards acquiring inspection customers. We knew this was the initial contact and where we had the opportunity to build trust with our services. We were rewarded for this shift in our marketing dollars. As the economy would ebb and flow, those smaller jobs and inspections continued when larger projects would no longer be available.
I spent some time thinking about the details associated with what your accounting numbers can teach you. Here is a short list.
What can your numbers tell you?
- By knowing which of your vendors you use the most, you may be able to negotiate discounts.
- Does your P&L show that you’ve spent 35% of your expenses on meals? You might want to cut back.
- Where is most of your income originating? Is it more than 50% from one customer? You may need to diversify.
- Is your income going down but your profit margin going up? You’ve done a fantastic job of lowering expenses during an economic downturn.
- Is your income going up but your profit margin going down? Watch your expenses. They may be out of control.
- Does your previous year comparison report show your expenses have gone up by 40% in a particular area? You might want to look into that.
You’re a busy businessperson. By using the tools you have at your fingertips, you may find a direction you never knew existed. You may find a revenue stream is actually losing money and taking from a strong revenue stream. The information you can gain from your bookkeeping is limitless. The key is keeping it updated and accurate. I believe that no matter what, your numbers tell the story. Investing your time or you resources to hire a freelance bookkeeper is worth everything you put into it. You cannot afford to only do bookkeeping annually for taxes. By that time, many things can and will go awry. By keeping up to date with it monthly, you can catch the good and capitalize on it. You can also catch the bad and make sure it doesn’t sink your business.