Asking the right questions

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Transcript:

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To get the answers you need, you're going to have to ask theright questions. And we're going to talk about that here today on Your Moneyand Your Business.

Greetings, my fellow entrepreneur. I'm Jonathan Ankney, theSmall Business CFO, and today we are going to talk about the answers you needwhen it comes to your money and your business.

I was talking with a small business owner last week, showinghim things about his business that he didn’t know. The reason he didn’t knowthese things? He wasn’t looking at his financial reports.

And the thing about financial reports is this: they answerquestions.

So what I’m going to do today is bring up some reports—thebalance sheet and the profit and loss statement—and we’re going to look at whatquestions they can answer. These are questions you should be asking in yourbusiness, too.

Let’s take a look at the computer—QuickBooks—and go to thebalance sheet first.

This is the balance sheet. What types of questions does itanswer? Well, there are a number of them, but the biggest one is: How muchmoney do I actually have?

Right? We need to know: How much money do I have? And it’sright here on the balance sheet under total checking and savings.

It also answers questions such as: Who owes me money?

And it answers: How much do I owe?—because I haveliabilities that I need to pay. Easy. This takes what—30 seconds?—and you’veanswered the question.

Then we go to the profit and loss report. What questionsdoes this answer? Well, it answers: How much money did I make? When we go tothe top of the report, we can see that for the 12-month period, the totalincome was $98,000. This is a QuickBooks sample file, so I know the numbers aresmall, but you’ll see the same structure in your own financials.

Now: How much do I spend in a given month, on average?

Let’s scroll down. Total expenses: $162,000.

If I pop that into a spreadsheet and divide by 12 months, Iget average spending of $13,500 per month.

Another question answered.

Let’s go back to QuickBooks and take a look at the balancesheet again.

There’s $105,000 in the bank.

I’m going to round and take that number—$105,000—and divideit by $13,500.

That gives me 7.77 months—about 7 months and 3 weeks—ofexpenses covered by my current cash on hand.

Again, another question answered. And in this case, we’reusing both reports together to get the answer.

And here’s the thing—we can go even further and ask: Howmuch money will I have? Yes, you can predict the near-term future, say 3 monthsout, with your financials. You take how much money you have, add inreceivables, add in expected sales—that’s all the money coming in—then subtractcredit card payments, liabilities, and average expenses. What you’re left withis your expected balance.

It’s not rocket science. It’s work to get there, but it’snot rocket science. It can be figured out.

And my observation is this—going back to the business ownerI mentioned earlier: a lot of small business owners operate on autopilot anddon’t take the time to ask these questions.

And even when they do, their bookkeepers and tax accountantscan’t—or won’t—answer them. Why? Because their focus is on taxes, not onfinance. The whole reason my company is called Small Business CFO is becausethe "F" stands for finance. This is about planning for your business.

And my goal here at Your Money and Your Business is tochange that. Because these are the questions that lead to financial freedom andbusiness success.

So your action step this week: pull out your balance sheetand profit and loss report, and ask these two questions:

- How much money do I have?
- What are my average expenses?

Answer those two questions for yourself—it should take lessthan 10 minutes—and then get back to selling and making money.

Of course, drop me a line if you have any questions, andwe’ll keep the conversation going in future videos.

Speaking of which, I’ll see you in the next one. Until then,I’m Jonathan Ankney, the Small Business CFO.

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