Ep 10 | Financial Literacy 101
In this week's podcast we lay the foundation of financial literacy for boutique owners. We thought it was a timely discussion for the podcast because April is Financial Literacy Month. If you’re like many boutique owners, you have a general understanding of things but you may not know how to use the financial data you have to its full potential. Once you have real data - numbers that you can work with - your financial reports become a tool for making smart business decisions, so don't let this go to waste!
If you’re like many boutique owners, you have a general understanding of things but you may not know how to use the financial data you have to its full potential. Once you have real data - numbers that you can work with - you are equipped and empowered to take big steps in your business, so don't let this go to waste!
When used wisely, your financial reports become a tool for making smart business decisions and making sure you're not over paying or under paying in taxes! If you're ready to get on the ball, this podcast is for you.
The most common accounting software that people use is QuickBooks. We use the desktop version at HarQuin because it’s the most user-friendly and our clients don’t have to pay a subscription fee (we absorb that cost). Within QuickBooks there are a ton of different reports, depending on what you want to see - bar graphs and pie graphs, and different color options (we know how much boutique owners love different color options!) . There are common reports no matter what system you’re using. We will discuss these today.
Balance Sheet.
This one scares people, but it doesn’t always give the best, truest picture of someone’s business. Your balance sheet shows your business assets, which is everything that you own or that you have as an asset - your checking balances, big furniture purchases, a building purchase, the wholesale cost of your inventory, etc. It also shows your liabilities - everything outstanding that you owe, whether it’s outstanding gift cards to your customers, sales tax that you’ve collected that you have to payout, your payroll liabilities, any of your loans, outstanding credit card debt, etc. It takes all of your assets and puts it up against your liabilities and it takes into account your equity account so any personal transactions or contributions that came out of your account, get parked in your equity account. Then you’ll see retained earnings. And at the very bottom of your balance sheet you’ll have a net income. This net income is not commonly what most boutique owners are looking at, but more for a conversation with your CPA.
Income Statement or P&L.
The most common report that we use is your P&L or your income statement - which is your profit and loss statement. This report shows you what your company earns, which is all your revenue and everything it took to make that revenue - all your COGs - Cost of Goods sold, and all of your expenses going out - office supplies, payroll, interest, etc. This creates a net income at the bottom and it shows you how you washed out for whatever time period you’re pulling the report for. Usually you’re looking at your income statement and your balance sheet at the end of the year, trying to get all of your tax stuff CPA ready, so you’re looking at the whole year. But the nice thing about doing monthly bookkeeping, whether it’s DIY or outsourcing, is you get a monthly snapshot of where you are and then you can compare that as you’re going through the year.
Monthly Reports packet we send out to our boutique clients.
Every month we include a Profit & Loss by month. You can start looking at each month beside each other and see trends, if there’s any holes in the boat, things you need to change. You’ll also see your waves of busy seasons vs slow seasons. You’ll see those big purchase months, too.
The next report we send out is a Profit & Loss previous year comparison. This report gives you snapshot of where you are right now, compared to where you were last year.
We also send out a Profit & Loss by percent of income. This is good for anyone utilizing the Profit First method or any type of budgeting method. This shows you where your money is going percentage wise. It’s important to compare this on a percentage basis as opposed to a raw dollar basis. For example, you may make a million dollars one month, but you’ll need to know how much you had to spend to make that million dollars. This is where you’ll be able to determine if you’re marking your inventory up enough, moving things fast enough, spending too much on basic expenses, etc.
Balance sheet. This is a month-end snapshot. It simply shows you where you are in your business as of the last day of the month. Every bookkeeping company should be able to supply this.
Member’s draw detail or Owner’s draw detail. This shows any of those transactions sitting in your equity account - any transactions where you accidentally use your business card, so that transaction gets pulled out and doesn’t count as a business expense, so it’s sitting in your equity account.
Profit & Loss detail report. A one-month snapshot so you can make sure everything is categorized how you want it. You want to make sure you’re keeping a close eye on it month to month, rather than looking at it at the end of the year. This will prevent you from missing transactions and forgetting what the expenses were for - if you forget what something is for, you end up having to claim it as personal expense instead of a business expense. So this will be a benefit of keeping an eye on your reports monthly rather than just looking at them at the end of the year.
This is a general overview of some reports that we think are helpful for boutique owners specifically. Having someone specific to your industry will be beneficial because there are many things you may not know you can claim and expense. Boutique bookkeepers know exactly what you can claim! If you’re a client, we offer free monthly Reports Training with Lindsey, the founder of HarQuin. Spots are limited, so sign up here today. This is something we bless our clients with, that is normally something that would cost hundreds of dollars with other companies!
For more content like this, join us in Boutique School - a membership training with our boutique bookkeeping experts to equip you in how to run a business.