Do you know what your "nut" is?

I’m talking about your business overhead, not walnuts, pecans or peanuts. So many owners think they know by adding it up in their heads rather than looking at the Profit & Loss report. That’s like balancing your checking account mentally instead of recording your activity in the register that’s included with your checkbook. We all are guilty of the “virtual checkbook” at some point or another. But what happens is that you inevitably forget about a check or transaction you did and your bank balance is wrong. Same goes for your business. The figure in your head is off.

Knowing your monthly business expenses is very important. How do you know your break even point if you don’t know what your total expenses are?

Take the time to sit down with your bookkeeper and review the Profit & Loss report of your company. This will show you what your total expenses are per month. You can take a quarterly, bi-annual or annual average, depending on the nature of your business, to determine your monthly expenses.

If you are in the service industry this is the minimum number you should generate in sales per month. You will have made enough to pay the bills and make payroll, but that’s it.

If you sell products make sure you keep in mind that you need to take in account the cost of the product in addition to your monthly expenses.

Is all this making your head hurt and causing confusion? Join the club. Nine out of ten business owners have an idea of this information, but it’s usually not complete. By determining what your “nut” is you can begin to build a foundation for your business that isn’t made of toothpicks. You will be able to make adjustments for your business mid month instead of three months later.

Don’t be intimidated or overwhelmed to review your Profit & Loss. If you don’t know how to interpret the information rely on your bookkeeper or CPA. If they can’t explain to you in a way that you can grasp the information then get a new bookkeeper or CPA. These professionals should assist you in understanding the numbers, not talk over your head.