Every quarter I do a complete financial review of my business. While it is important to keep track of your expenses on a weekly and monthly basis, it is also important to create an income statement for your business to give a better high-level view of your finances. If you don’t know what an income statement is, don’t worry – it’s not hard to make one, and come tax time you’ll be happy you made one each quarter.
So what is an income statement? A income statement is simply a financial document showing a businesses’ income and expenses over a particular time period. I take a snapshop every quarter (i.e. every three months) to ensure that I am tracking towards my financial goals for the year.
For a Domaining business your expenses are things like registration fees, hosting fees, advertising costs, domain purchases, etc. Income in a Domaining business is typically derived from domain sales, Google Adsense, Amazon products, ClickBank products, etc.
So why is this important to do on a quarterly basis? Most businesses, especially small businesses, do not keep good track of what’s coming in, and what’s going out. A successful company might not be profitable right-away but you need to have a plan to become profitable. Most start-up companies receive venture capital because they initially need to build-up the business and must therefore spend more money than they make. The only reason people invest in a start-up is because the company has a plan to become profitable, and the investors will make money as the company becomes profitable.
For your own business it is essential that you make a plan for the year, and easiest to break this plan into quarters. This doesn’t have to be anything too complicated – instead just set goals for yourself each quarter so you can then see how well you are tracking towards your goals. The great thing about creating an income statement every quarter is that you can catch yourself if you begin to head off-track and make sure you make adjustments in your business to reach your goals.
At the end of the day what this comes down to is spending some time working on your business rather than in your business. Many people start a business and spend all their time working in their business. You may feel like this maximizes productivity but if you aren’t spending at least some of your time working on your businsess you might not be doing as well as you think. This quarterly reality check has been great for me and come tax-time my accountant is much happier too!