The advice of one successful entrepreneur might differ greatly from the advice of another. One tip every successful entrepreneur will agree on, however, is regularly monitoring your finances. The value of this routine is regurgitated in just about every online article you see about spending or business growth. When you read the same thing over and over again, you can’t help but wonder why it’s so important. At first, regularly monitoring your finances seems like common sense. But that doesn’t mean it will never reveal extremely important information that would have otherwise gone ignored.
In fact, once you find out just how much you can learn from checking financial statements every week or so, you’ll get the impression that this habit may very well be the main reason the aforementioned success stories didn’t fail alongside their peers. Here are 4 reasons monitoring your business finances is such a big deal:
1. Your Revenue Might Not Be As Strong As You Thought
Strong cash flow is the number one requirement of a healthy business. It is loosely defined as an appropriate balance between the amount of money you take in and the amount of money you spend in a given period. But let’s be realistic: When the average business leader gets in to work every day, he or she likely isn’t thinking about how much money was spent in the past week. The paramount concern for business leaders is revenue. If revenue goals are not met on time, the business’s future could be in serious jeopardy. So, it’s safe to say that when revenue goals are indeed met, there is a big sigh of relief.
That is, until you have a look at your finances. Many failed businesses made the mistake of relishing their revenue-related achievements without taking into account how much money they had to spend to reach those goals. Earning $10,000 in one month, for example, feels absolutely amazing until you realize you spent $8,000 on operational expenses in that same period. While you might not have to consult business financials to get a good sense of your income, it’s much, much harder to apply the same concept to profits. If you worked your tail off to make that $10,000, reviewing your financials will help you determine what prevented you from meeting revenue and profit goals simultaneously.
2. Mistakes Happen With Recurring Bills
Recurring business expenses are usually automatic. You sign up, enter your banking or credit card information, and the transactions occur every month. But mistakes happen, even with the most reputable service providers. A look at your recurring bills might show that your original service agreement does not match up to the amount you’ve actually been paying. This is probably a big reason many people avoid looking at their bills. They already have a feeling that they are paying too much for something but don’t want to accept that they now have to spend at least fifteen minutes on the phone to have it corrected. But business owners aren’t just “people.” If there’s money to be saved, a few phone calls are well worth the trouble.
3. Knowing Which Invoices To Follow Up On
For businesses that revolt around invoices (wholesalers, landscapers, etc.), checking your financials every week also serves as a reminder to follow up on outstanding invoices. These businesses are frequently prone to deception from massive influxes of revenue. They might receive so much revenue at the end of every month that it seems to make up for receiving almost nothing in the weeks prior. But after reviewing their financials, they will likely discover that they should have or could have received much more throughout those weeks. This could allow the business to grow at a much faster rate. A common solution is to follow up on the outstanding invoices of the clients who are paying about two to three weeks late.
4. Small Business Loans Are All About Timing
Regularly monitoring financials is crucial if you are considering a small business loan in the near future. In order to be approved for the amount you need, you must apply at the right time. As any experienced business leader knows, the magnitude of an ROI often depends on the time at which the investment is made. For example, while some seasonal businesses often apply for merchant cash advances during their slow periods, others are better off applying when business is doing well, since it will give them access to the biggest merchant cash advance possible. This might be because the former business wouldn’t be able to pay off such a large amount, which is yet another vital piece of information that could be obtained by monitoring your financials.
Don’t Worry, It Gets Easier
You can’t really blame people for not regularly checking their business finances. Odds are, they casually glanced at them one day and what they say nearly put them into cardiac arrest. Getting over this fear is what separates the successes and failures in the small business world. And the longer you maintain the routine checks, the less intimidating each one becomes. Who knows what you’ll be able to overcome next?