Mastering Your Numbers: Best Practices & Key Takeaways for Business Owners

You've explored why financial understanding is crucial, the different accounting methods, the core financial statements, the power of planning, and when to seek expert help. Now, let's consolidate these insights into actionable best practices and vital takeaways that can transform how you manage your business's finances. 

Best Practices for Accounting 

• Review Your Books Monthly: Don't just let your accountant send you reports without looking at them. When your books close each month, actively review them. Do not stop at the profit and loss (P&L) statement; take time to examine your balance sheet and your statement of cash flows too. Ideally, review them on an accrual basis for the clearest picture of your business performance. 
  
  
• Understand Your Unit Economics: Dive deep into the numbers behind each sale. Specifically, focus on your gross margin. Knowing this figure intimately helps you understand the profitability of your core offerings. 
  
  
• Know Your Cash Conversion Cycle: Understand how long it takes for cash to flow through your business. From the moment you purchase inventory to the day you receive cash from your customers, knowing this cycle helps you manage liquidity. 
• Track Inventory: This is a critical component of your working capital. Keep a close eye on your stock levels and expiration dates. Make sure you do not have too much cash tied up in inventory. 
  
  
• Track your Accounts Receivable (AR) and Accounts Payable (AP): Collect money on time and pay strategically. If clients owe you money in 30 or 60 days, gently remind them when payment is due. On the flip side, if you owe someone money, pay them on time, but there's no need to pay early. Holding onto your cash for as long as contractually allowed helps your cash flow. 

Best Practices for Planning 

• Create an Annual Budget and a Multi-Year Forecast: These aren't just arbitrary numbers; they should be your roadmap, completely in sync with your business strategy. Your financial plan should outline how you'll allocate resources to achieve your goals. 
• Base Plans on Data and Trends: Ground your forecasts in your historical actuals and your best estimates of future market trends. The more realistic your assumptions, the more useful your plan will be. 
  
  
• Always Have a Worst-Case Scenario: You should hope for the best but actively plan for the worst. Having a contingency plan for challenging times keeps you prepared in case things don't go as expected. 
  
  
• Review Plan vs. Actuals Monthly: This variance analysis is your early warning system. Regularly compare your actual financial results against your budget. If there are significant deviations, it's a sign to investigate, understand why, and potentially re-strategize or re-forecast. 
  
  
• Look at Your Cash Flow Every Single Week: Beyond your monthly budget, maintain a 13-week cash flow forecast. This weekly view of inflows and outflows provides invaluable sanity and structure, helping you anticipate and manage short-term cash needs or surpluses. 

Key Takeaways 

• Accrual accounting is best (eventually): While cash accounting might be simpler initially, accrual accounting provides a clearer picture of your business's true performance and is essential when dealing with bankers and investors. 
  
  
• Know your numbers: This is fundamental to understanding your profitability at its core. 
• Pay attention to all three financial statements: The P&L, balance sheet, and statement of cash flows each tell a different, vital part of your company's story. You need all three for a complete picture. 
  
  
• Understand your cash conversion cycle and watch your cash flow: Just like Michael Dell advised, don't just watch your "speedometer" (revenue); make sure your "gas tank" (cash) is full. 
• Always have a plan: It provides direction and discipline, even if it evolves. 
• Regularly review your books and plan: Use variance analysis to stay on track and make timely adjustments. 
  
  
• Your plan is a roadmap for alignment: Align your financial plan with, your employees, investors, and stakeholders to keep resources and operations on a trajectory toward reaching business objectives. 

Understanding your business's financials might seem daunting, but when you break it down, it’s not as complicated as it initially seems. Having a strong understanding can build confidence, reduce stress, and directly contribute to your company's success. Now’s the time to start embracing change and enhancing your operations. Learn how EisnerAmper can be your trusted partner through every step. Contact us below to get started.