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Oddly enough, many small business owners have no idea if the answer to this question is yes or no! I was very guilty of this myself for a long time when I owned a retail store. I had business accounts for business expenses and income, and would often bury my head in the sand about how the business was doing financially. If there was money in the bank account I’d happily take a personal draw to spend, forgetting about (ignoring?) bills in the mail from the government, accountant, and suppliers.
Then when they arrived – yikes! Hmmm… hope we have a good sales day tomorrow. Not the best plan. When I closed my business in 2009, I realized how valuable a cash flow statement would have been right from the very beginning. I would have been more cautious with my spending in the business and outside of it, and had a clearer picture of what was (and wasn’t) working for my business. Like, say, far too many lunches at Original Joes with business associates.
Now that I work from home, I’m religious about maintaining my bookkeeping and cash flow statement and sharing it with my spouse regularly for a second opinion.
Whether you deal in small numbers or large, you should know every day how much you’re up, or down, for the year, and how much you expect to make by the end of the year. For those in direct sales, expenses can add up quickly, even if the company you signed up with claimed to provide everything you needed to run your business for free. Tradeshow fees, display items, gifts for hostesses or referrals, additional samples, gas, phone – is your income covering this outlay easily, or is the money you’re making being eaten up by these nickel and dime expenses?
Women working from home making a product like hair bows or soother clips face these expenses, plus more. Materials, shipping materials and costs, web design or email newsletter charges all need to be tracked.
If your business is large enough, you can have your accountant help you set up your cash flow statement, and then manage it yourself. If your business is small, you can make do with a simple cash in, cash out spreadsheet in Excel, with a running number showing your profit so far. There’s a great example perfect for the very small business owner at: http://www.accountingcoach.com/online-accounting-course/06Xpg03.html
So, is your business making money?
Sarah Deveau of Calgary, Alberta has written two financial guides, Sink or Swim: Get Your Degree Without Drowning in Debt (2003) and Money Smart Mom: Financially Fit Parenting (2010). She has owned a children’s consignment store with annual revenue topping $400k, and currently works from home around her three children. Sarah writes for a number of publications including the Calgary Herald and Today’s Parent magazine, and is a leader in direct sales company Stella & Dot, with more than 80 Stylists on her team.