In the journey of transforming from a speech-language pathologist to a business owner, I’ve encountered the steep learning curve of managing business finances. These details are important to know to ensure the financial health of your business. Here, I want to share some insights and tips that have illuminated my path, hoping they’ll do the same for you.

Master Your Bookkeeping

A pro tip that resonated deeply with me came from my accountant: master your own bookkeeping. This advice stems from witnessing the pitfalls that ensnare business owners who leave their finances entirely in the hands of others. By having a firm grasp on your books, you maintain control and understanding of your financial situation, empowering you to act swiftly should any discrepancies or issues arise with financial advisors or bookkeepers.

Financial Documents

Profit & Loss Statement

Despite my natural gravitation towards words over numbers, I’ve learned the importance of familiarizing myself with key financial documents. The Profit & Loss (P&L) statement, or income statement, offers a clear picture of your business's revenue, expenses, and profits over a specific period. It’s an indispensable tool for monitoring your practice's profitability, managing budgets, and adjusting expenses.

Balance Sheet

Think of the balance sheet as a financial snapshot of your business at a given moment, capturing your assets, liabilities, and owner’s equity. While not a requirement for all business structures in annual tax returns, it’s a critical tool for internal assessment. It can highlight areas of overspending, the effectiveness of your pricing strategy, and the return on your marketing investments.

General Ledger

The backbone of your accounting, the General Ledger, tracks every financial transaction, from assets and liabilities to revenues and expenses. It’s essential for keeping your accounts balanced, preparing for audits, and securing business loans.

Cash Flow Insights

Understanding the movement of cash in and out of your business is crucial, and the cash flow statement is your go-to document for this insight. It reflects the financial health of your business, indicating whether you have a positive cash flow (more income than expenses) or if you're in the red. A negative cash flow signals the need to examine cost-cutting measures or to find ways to increase sales.

Beyond the Numbers

While tracking finances is essential for the practicalities of running a business, it's vital to remember, as Henry Ford famously said, that the most important elements of a company—its reputation and its people—don't appear on the balance sheet.

Leveraging Resources

For those of us in the allied health fields, diving into the world of accounting can feel daunting. While I'm no expert, understanding these financial statements has been crucial for the health of my practice. For those looking for more depth and expert advice, I've found Jamie Trull's resources incredibly helpful.

Conclusion

Embarking on the path of business ownership requires wearing many hats, and one of the most crucial is that of a financial manager. Understanding the foundational elements of business finance empowers you to make informed decisions for growth and sustainability. By mastering your bookkeeping, familiarizing yourself with key financial statements, and keeping an eye on your cash flow, you lay down the groundwork for a thriving practice that values its services, its people, and its reputation above all.

Resources

Jamie Trull - Financial Literacy Coach and Profit Strategist