Do You Know Your Numbers?
Hello All,
Recently, I had a consultation with a client who had been working with a bookkeeper. Despite paying a monthly fee for help, it quickly became clear that her books weren't giving her an accurate picture of her business. Transactions were oddly categorized, and balances she knew to be true e.g. her credit card balance were significantly different. She posed these questions to the bookkeeper but was told that everything was correct.
Everything, however, was not correct, but she didn't have enough confidence in her knowledge to push back.
I share this not to suggest that professional help is unreliable. Most bookkeepers do good (or excellent) work. Rather, it illustrates the difference between simply entering numbers and understanding what they mean. Once you do understand your numbers, you feel confident about asking the clarifying questions, which can be deeply empowering.
I have enumerated some of the numbers and metrics that I think are relatively straightforward, but essential to know.
Does your income match your bank deposits? If you add up the income you've recorded, it should roughly match what was deposited into your bank account. If there's a difference and you can't explain it, that's worth investigating.
Do you know your hourly rate? Pricing your products or services is more art than science. Perfecting this is an ongoing challenge, but tracking how much time you spend , and your direct costs if you sell products , is one of the most important metrics (I will expand on this in a future newsletter).
Are your expenses categorized in a way that's actually useful? A lot of business owners use "miscellaneous" or "general expenses" as a catch-all category which doesn't really give you any meaningful information. Instead, by choosing a proper category you can see exactly what you are spending your money on, claim the right deductions, and spot anything that might be unusual. You can also compare to previous periods and years that allow you to see where you might be overspending.
Are you tracking GST/QST separately? This is one of the most common DIY mistakes. If you're registered for GST/QST, since you are simply collecting it on behalf of CRA/RQ, you should be tracking it and keeping it separate from your income so that your GST/HST amount owing is not an unpleasant surprise.
If you're incorporated, do you know your assets and liabilities? Most owner managers of corporations have a relatively simple list of assets and liabilities. These can be found on the balance sheet and include your bank balances, amounts owing from customers and investments (assets) and credit card balances, loans and amounts the corporation has lent to you (liabilities).
Do your numbers show you the big picture? When you look at your books, do they give you a sense of how your business is doing? Do you know how profitable you are after you deduct your expenses and taxes? Profitability is perhaps the most important metric as this informs many of your other financial decisions.
Knowing your numbers not only gives you confidence but can help you become more profitable and ultimately make running your business more gratifying. And, like my client, you might find it gives you the confidence to ask better questions, whether you're doing it yourself or working with someone else.
I’d love to hear your thoughts on what numbers you would like to better understand, or which ones have helped to bring clarity to your business. Simply reply to this email.
Ronika
