Are you sure you fully understand your financial statements?
Often in our videos and blog posts. you will hear us talking about the need for “reviewing your Financial Statements”.
So, what are we actually talking about when we say “Financial Statements”?
We are talking about Profit and loss/income statements and your balance sheet.
Let’s start with talking about the balance sheet. When talking about balance sheets, think of a tree, the roots send nutrients to the limbs and provides the tree with what it needs to bear fruit.
Your balance sheet is like the roots of the tree, it is going to report to you the different things in your business which allows you to make money. For a gym your equipment is going to be on your balance sheet, as well as your cash and bank account balance.
It is also going to report how things were purchased. Did you have to take out a loan or did you put money in yourself? This would be reported on the equity section.
Your balance sheet will be separated into 3 different sections…
The top is the asset such as bank statements, cash balances, inventory and equipment.
Underneath assets you will find the liability, or money you owe other people. This would include loan payments or credit card debts.
The last section is Equity, this represents money you have put in or taken out as the owner. It is also going to report the income from that business as well.
The reason it is called a “Balance Sheet” is in the name, the ASSETS need to BALANCE with the liability and equity.
The actual equation is Assets = Liability + Equity, it always balances.
Now we will take a look at your Profit and loss/income statements. These are going to have 2 sections.
On the top will be your income account and at the bottom it will show your expenses.
Your expenses may be broken out into different sections such as displaying costs of goods sold. “Costs of good sold” is money spent on things like inventory or custom made t-shirts, things your purchased with the intention of reselling. When it comes to the income statement we recommend 15-20 expenses as most, it doesn’t need to be crazy.
The purpose of financial statement is a more indepth look at what is going on in your business. You will know the names of the accounts and the transaction to have a better understanding of that final number that is your balance. Reviewing these help you identify potential losses and where you can improve.
Watch today’s Tip Video to learn the ins and outs of YOUR financial statements!
In my new book, Profit First For Microgyms, I break down Mike Michalowicz’s proven method, so that it is easily digestible by our Microgym owner community.
You can pre-order your copy today by clicking here.
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