It feels good to see money in your business bank account. But that balance alone cannot tell you whether your business is profitable.
Some of that money may need to cover an upcoming bill. A customer might still owe you for work you have completed. Or you may have paid for supplies this month that you will use over the next several months. To understand how your business is doing, you need to look beyond what is in the account today.
Three numbers to check each month
1. Revenue: What did your business earn?
Revenue shows the money earned from your products or services. If you invoice customers, keep track of both what you billed and what they have paid. An unpaid invoice is important to know about, even though the cash has not reached your account.
2. Expenses: What did it cost to operate?
Review your regular costs, such as software, supplies, advertising, insurance, and contractor payments. Small purchases can add up quickly. Recording them consistently helps you see where your money goes and gives you better information for pricing your services.
3. Profit: What remains after expenses?
A simple starting point is revenue minus expenses. If you earned $3,000 and had $2,200 in expenses, the difference is $800. Your bank balance could show a different amount because the timing of payments, invoices, and transfers affects cash in the account.
A simple monthly bookkeeping routine
You do not need to wait until tax season to review your finances. Set aside time each month to:
Record income and expenses.
Review unpaid customer invoices and upcoming bills.
Match transactions to your bank and credit card statements.
Look at your profit and loss report.
Make a note of any questions or unusual changes.
That routine can help you spot a missed payment, an expense that has grown, or a service that may need a price adjustment. It also makes it easier to make business decisions using numbers you trust.
If you are ready to get more organized, download my free bookkeeping checklist to help you start a monthly routine: Free Back Office Checklist.
At Moikeish, I help small business owners organize their books and understand their financial reports, so they can spend less time guessing and more time running their businesses. Contact Us if you would like support.
