Whats your Blood Type?

"Do you know your blood type" my doctor asked me. "Ah... geez, I... no, I don't" I answered. It was my usual, yearly physical. Heart beat sounds good, cholesterol is a little high, tendonitis in my knee and I don't sleep enough. But, that one question, "what's your blood type?", caught me off guard. How could I not know such a vital piece of information about myself? It got me thinking. How many entrepreneurs don't know their business "blood type"? The blood that keeps your business alive. Profits and losses, sales and expenses, debits and credits, call it whatever you want, but the financial health of your business is a fact you should be aware of everyday. Your finances are the blood of your business. And your blood type? Is either healthy, or unhealthy.

What's does healthy blood look like?

This is not, a comprehensive look at accounting practices. Rather, it is a resource entrepreneurs with limited understanding of business finances, can use to start their learnings on what financial information they need to have top of mind as they run their business. Generally speaking there are only a three financial statements you need to track when running a business. Balance Sheet A balance sheet provides detailed information about a company’s assets, liabilities and shareholders’ equity. Here's the most simple way to remember this:

Assets are things that a company owns that have value.

Liabilities are amounts of money that a company owes to others.

Shareholders’ equity is sometimes called capital or net worth. It’s the money that would be left if a company sold all of its assets and paid off all of its liabilities. This leftover money belongs to the shareholders, or the owners, of the company.

Income Statement An income statement is a report that shows how much revenue a company earned over a specific time period (usually for a year or some portion of a year). An income statement also shows the costs and expenses associated with earning that revenue. The literal “bottom line” of the statement usually shows the company’s net earnings or losses. This tells you how much the company earned or lost over the period. Cash Flow Statement

Cash flow statements report a company’s inflows and outflows of cash. This is important because a company needs to have enough cash on hand to pay its expenses and purchase assets. While an income statement can tell you whether a company made a profit, a cash flow statement can tell you whether the company generated cash. An income statement can show you a company is profitable over time, but that company could still be cash flow negative! So, how healthy is your business? Once we understand these three financial statements we can better assess the health of our business. Although we think of them separately, these documents are very intertwined. There are a number of different measurements we can look at to define the health of our business, but I like these: Operating Margin - which is defined as, Operating Margin = Income from Operations / Net Revenues

Operating margin is usually expressed as a percentage. It shows, for each dollar of sales, what percentage was profit. You can find this on the income statement. Working Capital - which is defined as, Working Capital = Current Assets - Current Liabilities. You can find this on the balance sheet.

How often should I get tested?

I go to the doctor once a year, maybe. And, not because I want to, but, because I have to. I'd advise against this approach when examining the financial health of your business. Get in the habit, from the start of your business, of keeping track of these three financial statements. Monitor them, monthly and use them to set you strategy. It is not uncommon for businesses to run yearly reports, of course. But, monthly and quarterly reports are more valuable when considering operational changes and setting bench mark goals to achieve. The more you know, the more equipped you'll be to make business decisions from a smart, sound point of view. Rather than, "I think we can afford to do this." #scratchmade #scrathmadetips #leader #ceo #motivation #motivator #entrepreneur #technopreneur #leadership #startup #smallbiz #smallbusiness #smallbusinesssales #dreams #hustle #passion #mentoring #coaching #inspire #ambition #beyourownboss #businesspassion #business