As a business owner, understanding what is in your Balance Sheet is fundamental in growing a great business. This video discusses what things are and why in your Balance Sheet.
What is A Balance Sheet?
Today I want to talk about balance sheets or what are otherwise known as a statement of position.
A balance sheet provides you with the financial position of your business. It includes and lists the assets, liabilities, and owners’ equity at any given point in time and illustrates the financial health of your business and its net worth.
Your balance sheet is the most important statement of three, the other two being the income statement and cash flow statement.
What I found is the balance sheets are a bit more complex to understand but they fulfil the picture with the profit and loss.
What you might expect to be in a profit and loss pops up in the balance sheet and so without both of them you don’t actually get a full understanding of the business. For people who are very knowledgeable such as accountants will love the balance sheet. They will say ” everything’s in there that we need to know”!
As a business owner you need to understand the components of a P&L and where certain things appear in there and what they mean and why are they there helps you out.
Check out the video above for a typical balance sheet derived from Xero accounting package.
If you got any questions don’t hesitate to contact me and keep your eyes out for other videos that are coming up especially around break-evens and and profitable losses that i’ve done previously and the best way to get informed of those is to subscribe to my channel so thanks for listening again and any questions are welcome to hear from you.
As a business owner, understanding what is in your Profit and Loss is fundamental in growing a great business. This video discusses what I like to see in a Profit and Loss for a small business.
Your Profit & Loss Statement
Today I want to talk about how to read a profit and loss statement out of your accounting program, like Xero or QuickBooks. What I’ve found is that business owners, without a great understanding, or in depth understanding of what’s in their profit and loss, they have difficulty in making great decisions in their business about spending money in certain areas or where to take it to.
I’m going to look at a real life, Xero profit and loss statement, and talk you through exactly the things that I would expect in that statement and how you can maybe adjust the one you have in your business to get some more information out of it, to help you make great sort of management decisions. So let’s jump onto my computer, and we’ll have a quick look.
Looking at a P & L containing historical information. We’re looking at previous months here, and I guess this is the first thing to point out is I like to see the break up on a monthly basis here. For example, we’re in October here and we can look at the previous months, September, August, and July, and most accounting packages will split it up into months for you, but I think this is really important as a management tool, you need to look at your P and L every month.
Some businesses are hooked on just looking at annual P & Ls from their accountant, but a monthly summary is something that is really, really useful. And another key feature or the main key features of the P & L is obviously we’re showing our income here, having cost of sales and expenses with the profit at the bottom.
Carving Up Your Income
And so let’s dig into each of these sections and cover off a couple of things that are what I would like to see in most businesses in each of their sections here. So income, this is all the income that comes into the business and it could be mistaken. This business here is largely, all the income is thrown into virtually one bucket here, but it’s good to be able to split it up into several buckets. If you’ve got a business that does installation and service, for example, you might want to put at least two.
Even better, if you’ve got certain regions or multiple core services, you can actually record your sales, you might have sales for excavations and sales for roofing and sales for Melbourne work, so you can start to understand exactly where the work is. So that’s a great thing to see in my view.
Analysing Costs
Now, in terms of being able to derive that sale or deliver that good or service, there’s going to be some costs involved. The cost of sales are usually the material and labor to deliver that job. So materials, for example, in say a business site might be flooring materials. Without that material, you can’t deliver that job. Subcontractors are usually under cost sales if they are an installer, for example. But also all of the guys or employees in your business that actually work on the job to deliver that job, their salaries and wages are a core part of that too.
Not all wages are a part of cost of sales. And quite often they’re put down here in expenses, but it’s a much better way for on the job guys to put them up here in cost of sales.
If they happen to be a admin person or a salesperson or general manager, they’re not used to deliver the job, so they would be down here in wages under expenses.
Operating Expenses
These expenses are typically things like power, heating, postage, rent, motor vehicle expenses anything that incurs a cost that you have to pay out, even if the job is not going ahead. So if you don’t have any work for a week, you might put your guys off and tell them to go and have a holiday, but these are things you’re going to have to pay.
I think that pretty much covers off the fundamentals of a P & L. So I’m hoping that what I’ve just gone through on the screen here has helped you have a greater understanding of what’s in your profit and loss. If you have any questions, don’t hesitate to call me, and keep your eye out for other videos that I’ve got along these lines, I’ve got one on balance sheet and break even coming up as well, which go hand in hand with the profit and loss video. And the best way to get that is by subscribing to my channel, so you can see all the videos coming up.
Have you ever wondered how many sales or turnover you need to know that you are not losing money? Or if you are purchasing a new piece of equipment, how much work it needs to do to make it pay? Or a sales person, how many sales they make to cover their costs?
Then watch this helpful video to show you how to calculate your break even in all these situations.
McGuane Constructions is a small building construction based business in Colac. We have four employees, four builders on the tools, a receptionist, and my wife helps out in the business. We focus mainly on renovations, we do do new homes, small, large, you name it, we do it.
We got on to Hugh through Tim Clark of the accounting firms, Sinclair and Wilson. Tim referred us to Hugh because I’m always in there annoying Tim for information regarding business and business strategies. And he referred us to Hugh knowing that Hugh specialises in our types of business and has the tools to help us grow the way we want to grow and we’re trying to grow in the future.
So, and what I’ve got out of the business planning session today is a lot of information comparing other businesses and being able to ask questions and direction of Hugh. I found he’s very good at being able to lead you in the right direction, letting you work out what you need to do, but giving you, I suppose, the tools and knowledge to affect those changes.
I think get out of these what you put into them so that I think that by Hugh giving you the tools, if you don’t do the work, you’re not going to reap the rewards of it. We’ve learned a lot today. We’ve got a lot of notes to go away and study, processes to put in place, goals to achieve.
And as my wife stated before these days are great because they force you to sit down and review your business properly, not just have a constant running, shaking your head where you think you’re doing stuff when you’re not really actually ticking off these goals.
And by doing this, it gives us goals to achieve and tick off as we go, so that we feel like we’re achieving something on the business development side, which is where we’ve always battled. So, yeah, thanks to Hugh and thanks for the day.
I’m Ben from Northwest Air Conditioning Geelong. We install air conditioning in the Geelong and Melbourne region.
Northwest install, air conditioning systems, and heating and cooling systems, and our niche market would be the boutique style builder and your retail builders, where you’re building the custom design homes. We do a lot of work where a lot of other companies can’t do, and we kind of say, “Well we can do it.” Yeah, so our target market would be the retail builder and any custom built homes, in terms of air conditioning.
Hugh has been our action coach for 18 months now and has been helping us with profit, which we’re actually up by 200%, which is fantastic. Since we started with Hugh we have work on:
– processes with all our work, making sure that our processes are nice and streamlined, which is ongoing, and that’s been a huge, huge help in that area. – our target market, making sure we’re targeting the right work for our business.
Coaching has really helped us just step out of the business and look back into the business, say you get out of the hustle and bustle, and you get to actually have a good conversation with a professional and just get a better clarity in moving forward and making sure you’re making the right decisions. Yeah, it’s just really good to have a professional there to have conversations around issues, you know daily issues.
Hugh’s really helped me understand the P and Ls of the business. So when I first bought into the business, I kind of didn’t have any idea really what I was doing, but I would just want to jump in the deep end and figure that out.
That’s when I got Hugh on board and then just understanding our profit and loss, he’s been really, really good for me personally, just to understand where we’re at with the company and just makes me feel more comfortable with the direction heading forward.
It’s really helpful with us three owners to sit down with Hugh, any issues that we have, Hugh always has some sort of tool to help us to move forward and implement a strategy or anything moving forward to resolve that issue. He’s just an easygoing bloke with a lot of industry knowledge I guess.
Another really good thing about Hugh is he has a lot of expertise and a lot of good tools that he can forward on to us to resolve any issues at hand, quite quickly as well. So, I think his expertise is really good with helping us move forward, especially to resolve any issues quickly.
Hi, I’m Ben from BM Floors in Newtown. We’ve got a showroom at 23/5 Bridge Street, Newtown. We do custom design projects, engineered oak, parquetry. I manage the project from start to finish, so you’ll get expert advice, 25 years’ experience in the industry.
Business Planning Session
Doing the business planning session with Hugh and others was great. We met some fantastic people, first and foremost, so we’ve got an insight into their businesses because a lot of the fundamentals in business are very, very similar.In terms of Hugh running the process, I suppose from start to finish, it was run very well. It sort of reinvigorated my business because I’ve got a business plan to focus on.
It was like analysing a lot of the business that I’ve got and a lot of areas of the business that I needed to focus on. You can’t do all that yourself. Having that sort of stuff in front of you and being able to look at that sort of stuff, as a rolling business plan, would be invaluable for my business.
I find Hugh easily relatable to, speaks on my level. His insight and knowledge over years, has been fantastic. Just getting a lot out of it at the moment. He’s actually got me to read a book, which is quite interesting because I haven’t read for years. It’s been really good for my business. From a coaching point of view, I would certainly recommend not only Hugh, but ActionCoach. I think it sort of relates to my level in terms of business.
I’m only a new startup business. I wanted the right people and the right processes in place, which he’s developing for me, which is fantastic because you can’t do that yourself when you’re just a one-man show running a business in a warehouse. I would certainly recommend Hugh’s ActionCoach. Definitely.
Hi, I’m Chris Beretta from D.A. Beretta Proprietary Limited. We are a longstanding plumbing company in Geelong. We specialise in hydro excavation, directional drilling, and civil works. We work mainly for local government utilities. Baum Water, V/Line are customers and several civil construction companies.
I went to Hugh Bowman to improve my business skills and to generate more business and do things a little better, basically to tidy up the loose ends. Hugh’s helped me to put a lot of things on paper and to get a lot of my ideas actually up and running.
I’ve been with Hugh, oh gee, over a year now, maybe a year and a half. We have, as I said, taken a lot of the ideas that I had and we’ve actually put them on paper and worked out a business plan around them and been able to implement them. Most of those quite successfully with a few more still in the pipeline.
Streamlining Our Business
We’ve looked at our future growth. Obviously, we’ve set goals, et cetera, along the lines of the coaching program. Within our business, we’ve actually improved our turnover and our profit margin a little just by tidying up a few loose ends and streamlining a few of our systems. We’ve started off a new business within our D.A. Beretta umbrella of traffic control.
It’s been small steps starting off, but we’re starting to grow that now and seeing some returns from it. We’ve basically turned a cost… What we were paying out we’ve turned from a cost now into a profit so we’ve turned it right around.
As far as Hugh’s strengths go, what I’ve found is that that Hugh is actually very good at helping his customers and myself is actually getting things out of your head and off paper and actually implementing and making it move. I’ve found that to be very helpful for me because I’ve got a hundred ideas, but it’s hard to actually get them up and running. To have somebody that can encourage you, help you along the path, and give you the right guidance is a benefit to any business.
My name is Ben Couch. I have a business called Melbourne Land Surveyors, and starting up a business called Geelong Land Surveyors here in Geelong. We take care of all land surveying requirements, such as land development, title surveys, feature surveys, anything to do with any sort of planning or development projects.
I basically learnt that setting up a business plan allows you to focus in on smaller aspects of your business to progress your business forward and making it a very systematic approach to business management.
Hugh’s very good, very clear, and also looked at your personal business, not just the whole, entire group, but made it also personalised towards your own projects and business models. Also, it was good to listen in to other companies and businesses, their ideas and what they’re doing. He’s going to be coaching with me for probably the next six months to see how things go.
Yeah, with the business planning day, it gives you confidence going forward, in implementing strategies into your business to make your business more successful.
Steve Miller’s my name. I run Diligence Bookkeeping and I’ve recently taken on a new caravan storage business, and today was figuring out how to operate that business at the best possible way. Three things I got out of today, the first thing was that I knew that I had to be aware of some cost changes that were coming with increasing interest rates and what have you, for my business.
And I’ve been able to figure out my new pricing strategy to meet that demand. So, that was one massive one for me. Another thing I was able to look at was some changes in how I had my internal systems so that I could bring in a little bit more money.
The other thing that was important for us, was that I was able to look at some marketing strategies that would help me attract a new market, which we’re prepared to pay a slightly higher price. So, all in all, it was a massive day and fantastic, really worthwhile.
Hugh Bowman has been a fantastic facilitator today. He knows what questions to ask to make you give the answers you need to give yourself. So, from that point of view, he’s able to bring up conversations and topics that make it easy for you to navigate the knowledge you need to bring out to solve your problems.
Being in the group environment enables you to interplay with the different business owners and it makes you think outside the square and it helps you use other people’s understandings to help you shape your viewpoint on your business, which you just don’t get a chance to do on a day-to-day basis. So, collaborating with other business owners has been super valuable.
This is my final recruiting tip I’ve got for small business owners that like to do the recruiting themselves.
A lot of it is geared around getting buy-in from the candidate applying and saving your time through the interview process. And this final one is saving your time in the interview process, the final interview.
After The Group Interview
After you’ve already done a group thing and they already understand all about the company and the culture and the role and their expectations and they’re still interested. They’ve also done the group questionnaire and you’ve asked them a whole bunch of questions and they’ve sent it back to you.
You understand if they can read and write and articulate themselves and spell and things like that. So this is the final interview, which does need you, as the owner, time to spend with them and get into them.
But prior to you doing that, throw them your team, because at the end of the day, they’re the people that are going to work with them. You need your team to buy in on this applicant and make sure they think he’s going to be a good fit and he’s going to work. And I can tell you that very quickly, they will tell you if it’s not going to work, if they don’t want to work with him or they’re not going to have the skills or they’re worried about it and the like.
Team Players
Throw them to your team and get your team to do the thumbs-up and make sure they’re happy with this person. Then you, as the owner, dig in and do the final interview.
So that’s my tip. Hope it works for you. I found that in the past, that it’s a real winner to get the whole team on board to help train and get behind this guy and including him in the business. So I thoroughly recommend using your team with every interview that you do.
I hope that helps you out, and good luck for all your recruiting needs.
