Sometime when I ask my accountant for his thoughts on a financial issue, he starts giving me a detailed explanation – something I usually don’t want. He’s really not trying to get under my skin, he’s just trying to give me a complete answer. He’s very passionate about his work and enjoys discussing some of the finer points of financial management, but I really like to keep it simple for two reasons. First, I may get lost in the details, and secondly, I’ll spend too much time back at the office trying to remember the details of the conversation. When he gives me an overview and just the facts that I need to be concerned with, it’s much more valuable.
This happens a lot with SMB’s, making finance more complicated than it needs to be for the small business owner. We’re really a lot more concerned with growing the business, but do need to understand finance and tax issues. This concept can be applied by looking at a few key financial ratios that you should track to monitor your financial performance. You don’t need to know how to calculate them or why they are important to your banker, just what they should be and how to monitor them for your business.
Here’s an exercise you may want to try. Call your accountant and ask them for the 5 ratios (or reports) that they think are important and what these ratios/reports should look like for your business. If they start getting too detailed, ask them for just the end result and how to best monitor them. This can get you started on understanding and managing your business finances that is simple and easy to understand.
If you want to track these ratios/reports, ask us how expex can help you!