Why It’s Important To Know “How You Are Doing” Each Month

“So, how’s business?”

It’s a common enough question and one that is often asked at the start of business meetings, networking events, and at conferences.

The pat reply “pretty good” is usually given, and sometimes “we’re doing great” and the much less frequent response “things are tough” because, after all, business owners want to give off an air of confidence and well-being.

Responses aside, I often say to myself “I wonder if they really know” because it has been my experience that many business owners are, if not in the dark, vague about the situation unless of course it is glaringly, good or bad.

As a business owner, it is crucial to understand “how you are doing” or more specifically, the financial performance of your business. This means that you need to know how your business is doing financially each month, and there are several reasons why it is important to have a clear understanding of your financial situation:

Helps you make informed decisions: When you know how your business is performing financially each month, you can make informed decisions about how to allocate resources. You can identify areas where you need to cut back and where you can invest more. This way, you can ensure that your business is making the most of its resources.

Provides insights into marketing and sales: By understanding your financial situation, you can gain insights into the effectiveness of your marketing and sales. For example, if you notice a decline in sales, you can investigate to see if there is a problem with your marketing or determine if the issue lies in the effectiveness of your sales endeavors.

Enables you to manage cash flow: One of the biggest challenges for small businesses is managing cash flow. By tracking your financial performance each month, you can identify potential cash flow problems before they become serious. This can help you take action to prevent cash flow issues, such as adjusting payment terms, negotiating better payment arrangements with vendors, selling more assertively, or reducing expenses.

Helps you secure financing: If you need to secure financing to grow your business, lenders will want to see your financial statements. By tracking your financial performance each month, you can ensure that your financial statements are accurate and up to date. This can improve your chances of securing financing and help you negotiate better terms.

Looking at your monthly financial performance is a cornerstone in what I do with and for my clients. By doing this, a business owner can make business decisions that are based on fact, not fiction, and can better plan and be positioned for business growth and long-term success.