Did you know that your small business financial reports are a GOLD MINE of information about your business? It’s true. Your reports are so much more than just a bunch of boring numbers jumbled on the screen. In this post (and video!), I’m showing you how to use your financial reports to make strategic decisions in your business.
Before you get started, you should read about the 5 different business numbers and what they mean to help you understand what EXACTLY you are looking for on your Profit & Loss report.
I’ve been reading reports and deciphering numbers for small business owners for over 10 years. Along the way, I’ve picked up some pretty awesome tricks that make the whole numbers thing WAY easier to understand. So if you’re nervous about looking at all those NUMBERS, don’t worry. My method is simple, straightforward, and effective!
This post contains affiliate links to products that I use, know, and love! Affiliate links mean that if you sign up for something through my link I receive a small commission. I only recommend products that I have tested, use for myself or for my clients.
The Profit & Loss Report
A Profit & Loss report, which is also known as an income statement, is a report that shows you all the money you made, all of your costs, and all of your expenses in any given time period. It also shows you your net income. If your net income is positive, you’ve got profit (wheeeeee!) which means you’ve made more money than you spent! If it’s negative, you’ve got a loss. That means that you’ve spent more money than you made.
Now if you want a deep dive into the anatomy of a Profit & Loss report and the basics of reading this report, check out my post How to Read a Profit and Loss Statement for Small Businesses, which goes into a lot more detail about Profit & Loss reports.
All the reports I’m showing you have been created using QuickBooks Online. If you’re already a QuickBooks Online user and haven’t played with reporting features you’re in for a treat (check out this tutorial for more on how to run a Profit & Loss report in QuickBooks Online). If you’ve never used QBO, I highly recommend you give it a whirl with a special 50% off offer.
Regardless of if you use QuickBooks Online or not, the tips here apply to any and all Profit & Loss reports. If you’ve got a report, you can increase your income!
Declutter Your Income Streams
The first way you can use small business financial reports to grow your business is to cut out low earning income streams- which I call decluttering your income. As a small business owner, I know I often find myself offering WAY TOO MANY products and services. Some of these offers don’t really make very much money and divert my time and attention away from top-earning products and services. Just like we have to declutter our homes, we also need to declutter our offerings.
With a Profit & Loss report, you not only see your total income, but you also see your income broken out by category. That means you can see which income streams are bringing in the most revenue in your business.
There are two ways to look at this.
1) You can just look at the numbers and look for which income streams are the highest. This is pretty straightforward and easy.
2) You can also use this super cool report in QuickBooks Online called Profit and Loss % of Total Income. Using this report, you can actually see what percentage of your total income each income stream makes up (watch the video for a demo on how this report works!).
Using your Profit & Loss report to rank how much each income stream earns opens up a lot of possibilities for you. You can cut low earning products or services and refocus your attention on the profitable areas of your business.
Decide What Products or Service to Launch
Sometimes it’s really overwhelming to know what you should sell. There are so many ways that we can monetize our skills and creativity that it can feel like a lot of pressure to choose the right offer. This is where your numbers come in.
Just like we can use our financial reports to cut out our lowest earning products and services, we can also use our reports to identify what types of products and services sell the best. Knowing what our market wants makes it so much easier to create profitable offerings!
Look at your Profit & Loss report and see what kinds of offerings sell the best. This could mean a lot of things, based on your business.
For services, you could look at:
- Do shorter or longer service packages sell best?
- Packages or ala carte services?
- Is there a skill set people are seeking you out for?
- Does the work you enjoy doing make you money? This is an important one, because if you’re making all your money from work that you hate, you probably need to reassess your business model.
For products, you could look at:
- Do digital or physical products sell best?
- What variations of the product sell the best (size, color, design, etc.)?
- If you make info products what information are people seeking? What topics sell the best?
- What price points are driving up your revenue? For example, while I sell a lot of mini-trainings throughout the year, 63% of my digital product revenue comes from my online course, Badass Business Finance, because the price point is so much higher. So, while I sell that course less often, it still makes up a significant portion of my income.
Want to see these questions in action? Watch the video to see me go through these very questions and develop a strategy using a sample Profit & Loss report.
Decide When to Launch
Now that you know what products and service to offer, it’s time to figure out when to offer them. Typically, people don’t focus too much on WHEN they release new products or services. However, your financial reports can help you pick the very best time to sell something new.
My very favorite Profit & Loss Report trick is to display your Profit & Loss report by month. I like to run a previous year or year-to-date report and look for my income highs and my income lows. The highs are when your customers are spending money and the lows are when they’re not. Keep in mind, if you took a vacation or time off during those low months, you want to notate that because your income fluctuation isn’t based on your customer behavior, but rather your own.
Next, you’re going to look at your different income streams and notate their individual highs and lows. Knowing this, and based on what product or service you are launching, you can then ask yourself: Do I want to launch a new product when I know my customers are buying? OR Do I want to launch a new product when my income is low and I need some extra cash flow?
There’s no right or wrong answer here.
Rather, it’s about the intention that you put behind the launch. You may decide to stagger your new product or service releases with low-earning times to smooth out your cash flow. OR, you might decide to launch with a bang, during your busiest season. The point is that you decide with intention.
As you can see, knowing your numbers can dramatically change how you decide to run your business. Plus, if you’re using Quickbooks Online, you can see 3 separate reports for comparison. How cool is that?
I hope these three tips have helped you see how your small business financial reports can SERIOUSLY help you level up your income.
I have something super special for you- a free Profit & Loss template! It’s free and you can use it every month to get clear on your numbers without a fancy smancy accounting program.