Recall in my last Article (if you havn’t read it, please do, so we can be on the same wavelength in this series. It’s the immediate past post, do scroll up to read) I promised to take us through the different Financial Statements, what they represent and how they apply to our businesses before going into what I did that made a difference in my business.

Here is a brief summary of the 4+1 financial statements

  1. Statement of financial position

Also known as the Balance Sheet, this focuses on the Resources (Assets) which is the available tools in carrying out the business or to generate income and the source of fund i.e. what was used to fund the resources of the business (Debt i.e Liability or Equity i.e owner’s investment)

 2. Statement of Profit and Loss or Income statement

This talks about Accomplishment Vs Effort.

Accomplishment is the term for Revenue/Sales or Turnover while Effort is the term for Expenses.

When Accomplishment is more than Effort, you realise Profit

When Effort is more than Accomplishment, you realise a loss.

3. Cash Flow Statement

This depicts all information regarding inflow and outflow of cash from the business. It shows a company’s cash management in an organised pattern.

4. Statement of Change in Equity

Equity has to do with the Owner’s investment in the business. Hence, this statement tells us how the owner’s business is growing or destroyed.

At the start of the business, the money which is being invested by the owner(s) is called Contributed Capital. During the course of running the business, the profit realised and reinvested back into the business after all expenses have been deducted is known as “Retained Earnings”.

4+1. Notes to the Financial Statement

These notes are essential to fully understand the other 4 statements earlier mentioned.

Now, let’s discuss what measures I took to help me truly track my revenue and expenses closely.

First, I opened 1 more business account carrying the business name and called it the ‘Expense account”, this was meant to be different from the main business account and a 3rd one which is my personal account where I will pay myself monthly salary or bi monthly.

  1. Revenue account (account 1) will take in all Sales for the month,
  2. Expense account (Account 2) will take in Expenses for the month
  3. Account 3 personal account was for payment of my salary

With this invention, no direct spendings was done from the Revenue account and at the end of the month I could clearly track the transactions in terms of transfers to only 2 accounts (Expenses and personal) every other debit will be bank charges

The Expense account carried a transaction history, all spendings done from that account including staff payment, bills that kept the business going and payment to influencers.

This was an eye opener because when the Net Profit (profit after all deductions) was calculated it was clear we were paying too much for adverts. I became worried, now the big question. How can this be? Is there anything like too much advert? Shouldn’t adverts be important for growth of the business? But we are making money so what really is going on? This led to an ultimate search part 2 *lol*. At this point I knew I was in for something.

My head started to ache, induced headache had set in, am I not the same person whom her friends would meet for business advise? Same business guru that always wore a thinking cap. How did I miss this? To those whom I had given business advise in time past I hope this isn’t a clear case of a “one eyed man being the king in the country of the blind.  

 I think I should have named this series *The Life of a small Business Owner* lol

I needed to fix this in the next 24-48 hours, a decision had to be made else the business will carry out same routine in the coming month and if we did that, we will be headed for doom.

But one thing was clear the business needed to either reduce the number of macro influencers it worked with but this might cause a decline in sales, review our prices, which will mean a review in 2 months and customers will raise their brows or get micro influencers which was more cost effective, but this would seem like going 2 steps backward, i thought we had grown past that. Hmmm…. at this point, i knew i needed to sleep.

See you in my next article when i’ll be sharing how the cash flow statement and knowledge of Current Asset and a balance of all 4 financial statements helped me get into a better negotiation and settled Templebody (The business name).


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