Energetic CFO

7. The Most Important Document for Financial Success

• Eric Vogel

Share episode

In this episode of the Energetic CFO Podcast, Tiffany dives into the single most important document for achieving financial success in your business—the Profit and Loss (P&L) statement. Tiffany breaks down why the P&L, also known as the income statement, is the foundation for understanding your business’s financial health and making informed decisions.

She shares personal experiences, real-life examples, and actionable tips on how to start tracking and using your P&L effectively. Whether you're a seasoned business owner or just starting out, this episode is packed with valuable insights to help you take control of your finances and grow your business.

What You’ll Learn in This Episode:

  • Why the P&L statement is essential for business success.
  • The difference between P&L, cash flow, and balance sheets.
  • Practical steps to set up your business finances, including bank accounts and bookkeeping.
  • How to use your P&L to make critical decisions (e.g., hiring, investments, expense management).
  • Why regularly reviewing your P&L is crucial for growth.
  • Real-world lessons from Tiffany’s experiences running a handyman business and managing unexpected financial challenges.

Key Moments:

  • 00:00 Introduction to the Episode
  • 03:14 Why the P&L Statement Matters
  • 06:30 Setting Up Bank Accounts and Bookkeeping Systems
  • 10:45 Using Your P&L to Make Smart Financial Decisions
  • 15:32 Real-Life Lessons: Overcoming Financial Challenges
  • 21:48 How to Audit Expenses and Improve Profit Margins
  • 27:10 The Importance of Regular Financial Check-ins

Take Action:

  1. Set up a designated bank account and bookkeeping system for your business.
  2. Regularly review your P&L (at least monthly or quarterly) to understand your income, expenses, and profitability.
  3. Audit your expenses to identify areas to cut costs and improve margins.
  4. If you’re struggling with your business finances, reach out to Tiffany for guidance.

Connect with Tiffany:

If you enjoyed this episode, please share it with a friend who could benefit from these insights, and don’t forget to subscribe, rate, and review the podcast!

Stay tuned for next week’s episode, where Tiffany reveals the most important advisor every business owner needs to succeed.

Welcome to the Energetic CFO Podcast, where we empower you to take control of your financial future. I'm your host, Tiffany, an advocate for financial literacy and business success. In this podcast, we'll explore a wide range of financial topics from money mindset and budgeting to building wealth and achieving financial freedom. We'll break down complex financial concepts into simple, actionable steps so you can apply them in your own life. Whether you're a new entrepreneur or a seasoned business owner, this podcast is for you. Join me as we dive into the world of finance and discover the tools and strategies to help you achieve your financial goals. Let's get started! Welcome back to the energetic CFO podcast. I'm your host, Tiffany Vogel, and I am so excited to be here. I just had a great conversation with myself. I talked, I don't know, probably for about five minutes. I was recording this episode and realized I didn't hit the record button, so we're going to try again and hopefully I hit all the points that I hit when I was talking to myself. It was a great conversation. So glad glad i'm here Sorry, you missed the the first iteration of this, but hey, we're here and we're doing it So I am so excited to be here. I It's been a rough kind of a week I'm, just getting back from all my travels getting back into the groove of things. We caught a nasty cold You And like our two year old bounced back so fast. He ran a fever for two days and then he was solid. And then my husband and I both caught it. So we've been fighting the good fight, trying to keep things rolling with the kids and the businesses and all the things. And then we get another round of snow in Atlanta. Like, what is this? We're in the South side of the suburbs and we had school closed for MLK day, which, you know, was planned and expected. And then. I'm recording this the day before it's going to release, so on Wednesday. So we had no school yesterday. We have no school today, probably no school tomorrow. So we're hoping for one day this week to for him to get some work done. But I am so appreciative that he has held down the fort with the kiddos and. made sure that they have everything they need and is not completely losing his sanity chasing a two and a four year old around so that I can continue to work and show up and do things like this. So, so much gratitude for him today. But I, I'm so excited to talk about this most important document you need in your business. to be successful. And it's come from some conversations I've had over the last really today, but also over the last week and months and realizing that not everyone has this readily available in a way that's usable and it can drastically change how you operate your business. It's something I've used from pretty much day one to make business decisions. But I'm a finance nerd, and I love spreadsheets, and if you're not that kind of person, which I'm assuming you're not you're not a geek like me over here, you, you don't have this handily available. And I want to challenge you at the end of this episode to implement some systems to make sure you can get to these documents. So the number one most important document for financial success in your business would I arguably. If you disagree with me, let me know. But I would say it's the P& L or your income statement. And the reason I say that is, it is the lifeblood of what's happening in your business. And I want to just caveat and say, it is not the cash in and out. There are accounting principles that come into play, that some things are not going to, Show on your, your income statement or your P and L, but they come out of your bank account. So for example, if you're making payments on a loan, you're paying principal and interest. So you're paying down the loan balance a little bit each month. When you make that loan payment, the interest will show up on your P and L as an expense. But the loan paid on portion of it shows up as on your, on your balance sheet as a reduction in the loan amount. So to put this into some concrete numbers, let's say you're paying a thousand dollars a month towards a loan and 800 of it is going towards interest and 200 of it is going towards paying down the balance of the loan. This is a new loan, has a high interest rate, just go with me. So that 800 will show up on your P and L, but the 200 is going to your balance sheet. And it's not going to show up when you pull up P& L. So this is where I like using projections and we'll do another episode about that coming up. But I just want to caveat to say that P& L is not the end all be all. It is not everything you need, but I think if you use it as a starting point, it gets you at 80 percent of the way there. And then we can use spreadsheets and things like that to get you the rest of the way. But that is like the foundation document to drive your business. And I want to just add. This is primarily, I would say, for service based businesses. If you have a lot of inventory and you're selling a product or like manufacturing, goodness, that's a whole different beast. Or real estate even. I mean our real estate business, we have to review the balance sheet regularly because there's so much going on within the balance sheet. So both are important. The statement of cash flows is important as well because it gives you a picture of the cash. But honestly, I think it gets confusing when you look at the cash flow statement. And I think that's where a lot of people just throw their hands up and say, I give up. I can't do any of this. And that's where I like to simplify it by just focusing on the P& L. And then we can pull in the balance sheet stuff in our projections to get a clear picture of what's happening. But if you just have one document that you're looking at in your business from a finance perspective, Look at the P& L and if you're not looking at it on a regular basis, you're doing yourself a disservice. It is so important to have a clear view of your margins. Are you paying too much in salaries? Are you paying too much in tax and other strategies potentially to to reduce that tax obligation? What's your overhead like? Are you paying more in overhead than your business can sustain? Are you paying yourself enough? These are all questions that I see come across my desk including like, can I hire someone and how much can I afford to pay them? Or can I invest in this new software, this new venture? If you're asking those questions, the answer is in this crystal ball that we call the P& L. And I was put on this earth to read into that crystal ball. I firmly believe that. Like I can look at a spreadsheet and just see things that most people don't. And I just learning that this is not a normal trait. So I, I love the spreadsheets. I love the numbers. That's like my favorite thing. And I love helping business owners translate that into something they can do and some kind of action. So let's say you're looking at, can I afford to hire somebody new? We want to start by pulling what we have spent over the last year. Okay. And if that's not something you have where you can pull it within five minutes, let's start there. So when you're setting up your business, no matter your entity structure, I don't care if you're a sole proprietor, LLC, S Corp, whatever, does not matter. We want to start with having a designated bank account for this business. And if you're going to use a credit card, you just have a designated credit card, run all of your expenses through this account. And I get it. Like there are times. We put personal stuff on the business. Well, ideally, you're not putting personal stuff on the business, but sometimes I'll pay for business stuff with my personal card. So as an example, I've done a lot of travel over the last year and we had a trip planned to Miami for my mastermind and it got canceled because of a hurricane and I used my business card thinking that, you know, it's the right thing. It's a business expense, but I didn't realize that there weren't travel benefits on that card. And I have a fantastic credit card with travel benefits, but it's personal. So what I've been doing since then, because I was going to get potentially dinged with the whole hotel bill. And like, there was no travel insurance and. I was going to be out a couple grand and I was not happy about it. The hotel did refund us because they had to close because there was literally a hurricane coming. But I have started using my personal card for booking that travel because of the benefits of that card. And then I make a point to at least once a month, usually if it's a one off expense, I'll do it immediately. But if it's, you know, I've got a lot of travel and things going on, I'll do it once a month and I'll go in and log all the expenses on that personal card into my accounting software. So, a little complicated, but if you're going to purchase business stuff on your personal card, make sure you're keeping track of it somewhere so that it can get into your business books so that you're capturing it appropriately. So, the first step, have the right bank accounts. And by right, I mean just designated solely for the business. It doesn't matter what bank you use. It doesn't matter the interest rates, like none of that matters at this point. It's just getting an account set up. And then from there I would use an online bookkeeping software. If you want to chat about the best recommendation for your business, reach out to me and we can definitely chat about that a little bit more. But if you're doing it by yourself, I would find some, a software like on the personal side, we use rocket money and I love it. It's just an easy way to pull in all of our bank accounts and credit cards and all the things we have going on and see in one quick view, how much we're spending. So you need something like that for your business as well. So, I would start with something simple just to start getting the hang of it. And you're going to want to track your expenses and make sure that they're going into the right buckets. And I almost think everyone should be their own bookkeeper for at least a couple months. to get a real feel of how it works and then pay someone to to help make sure it's all done right. But having a clear picture of how the books work is so critical. And if this is something you want to do a deep dive on, reach out to me. If we have enough interest, I can do a group call potentially to dig into these financial statements and like some basics of bookkeeping. I am not a bookkeeper. If that's something we need, I can definitely pull in. I've got plenty of resources of friends that do bookkeeping and even teach DIY bookkeeping. So if that's something you're interested in, definitely shoot me an email and we can chat, but you want to have everything categorized Make sure your income's all there So when you're pulling in your your income from your stripe or your Shopify or whatever you're using Make sure that it goes into that account. So it's coming in and categorizing it in your books So once you have a clear picture of the income coming in, the expenses going out, then you can pull that P& L and it'll tell you very fast. Are you making money? Are you losing money? And hopefully it shows you're making a lot more than you thought, but it might not. And I want you to be so happy that you now know if you're making money or not, and you can adjust accordingly. So, personally, I like to do an expense audit at least once a year, probably more like once a quarter, to just go in and see where, where's the money going each month. Particularly overhead, it can get out of control so fast. You know, we, we buy software and then we add more and we add more and then we might not be using that first one we bought. So having a clear picture of the software and all the expenses, really, and then layering in on top of that, how much are you paying to team to create the things that you're selling, whatever it is, and making sure that that's in a good spot so that you, you can be successful. If you're paying a team commissions and you're paying too much there, you're You're, there's a very slim chance you're going to be able to take home as much as you want because so much is going out before it even has a chance to help you fund the business. So just something to notice. So the P& L, it doesn't have to be so daunting and complicated. It's just breaking it down. The way I like to look at it is revenue is your green light. That's the money coming in, all good stuff there. Then you have your cost of goods. So that's your yellow light. That's the stuff. It's a necessary evil. Could be cost of services as well. That's the stuff you have to pay to run your business. So if you have someone else delivering, that would be commission. If you're producing an item, it's your product cost. It's really anything directly tied to producing that item. And then finally you have your overhead, which is everything else. It's advertising, it's travel, it's all the things. And I know personally, like I've gone down this rabbit hole of paying for courses and investing in my business. when it wasn't time to. And I thought I have to do this in order to get to the next level, but the business was not in a spot to sustain that. And doing that, you know, year after year, I've spent a lot in programs and courses and it wasn't, it wasn't the cure all that I thought it was going to be. And I wound up investing too much in my business. to the point where I'm, you know, the next year really going to slow down. And I think the fact that I'm having a baby kind of forces that too, but really just slowing down and focusing on growing my revenue and keeping my expenses low and just letting the business go how it goes. And then after I get to a level that I'm really comfortable with being more strategic and how I deploy my investments. And I, historically, I did not view investing in a program or a coach as an investment in my business, but really that's what it is. And a lot of them are pretty pricey and they can be four and five figure price tags, which could eat a hundred percent of your profit for the year, especially if you do a couple of them. So I just want, I want you to be in a place of empowerment and knowing. If I make this investment, if I hire this new person, if I do this thing, here's how it's going to impact two very, very critical numbers, the cash in my business and the income at the end of the year. Those two things are the ultimate lifeblood of your business. And if you can't clearly define and say, by hiring this person, it's going to impact my expenses in this way, which will impact my profit. and in turn impact my cash position, then you need, you need to have that. Like that is the key to being able to make an informed decision. Because the last thing you want to do is buy the course or invest in the person and three months down the road realize you don't have the cash or the income to support it. And then having to make a decision from a place of fear and panic versus being proactive and having a plan ahead of time. So I would say the number one most important document for financial success is having a P& L and it's not just having it. It's actually using it too and making sure that it's something that you're checking in on at least, at least once a quarter. Ideally monthly. Most bookkeepers aren't updating on a regular basis. More than monthly unless you're paying for that service. And I don't think it's worth it for the majority of us to pay. For more than a monthly update, but there's also a level of checking in with your bookkeeping team or accounting team to make sure that they are actually keeping the books updated regularly. There's nothing worse than going to pull a P and L and see where you stand in your business and the financials are, are all over the place. Or, you know, it's showing revenue at 20%, what you thought it was. Because you know, what's coming in, you see it in your bank account, but if your books aren't showing that you could be misreporting. It could just be something simple like the bank account didn't link properly, but making sure that the, the numbers that are going to your tax authority is so important. Making sure that they're accurate and that you have a firm grasp on what is coming in, what is going out. Sometimes we think more is coming in than we realize whether it's paying out for taxes or whatever the situation is. So we just want to make sure that what we're collecting is truly coming in to us each month. And what we see in the bank account may not always be an exact representation of that. So, yes, absolutely important to monitor your bank account and make sure that you're, you have the cash coming in and you're allocating for taxes and all the things. But also make sure you're checking that P& L to make sure it's accurate so that you can look at these financial reports. And then from there we can review margins to make sure that's in a place that feels aligned and healthy and where you want to be. I mean, there's nothing worse as a business owner than paying your team more than you make. I know when we ran our handyman business, it was, it's kind of laughable. We, we were doing everything right and still not taking home a lot of money. And it's because our team was, we decided to put them as W2 employees because Legally, that's what we felt like we had to do and we were providing vans and uniforms and like, there were a lot of things that we were doing that made us feel like we had to do it. So we had these beautiful lettered vans that looked like we were this massive fleet and it was just two trucks, me and my husband, and that was our business. And we, I get a call one day while Eric's on military leave. He was working at a call center for COVID. I am pregnant in my first trimester with my first son, so if you've been pregnant before you know what that means. Running the handyman business, the rental business, and I think we were in the process of writing our book then, I'm not sure. And working a full time W 2 job. And I get a call from some guy and he's like, Hey, I just wanted to let you know that your guys are standing outside of Walgreen's smoking weed. And I'm guessing that's not what you want your guys to be doing. So, I have to text Eric and like, tell him, Hey, I need you to handle this, cause I can't right now. I'm like, overloaded with all of the other stuff. And, it just, it was just comical. But, we had them as W2 employees. Get back off my little sidebar. And, they were paid hourly. So, when they messed up a job, we had to continue paying them. And I know there was this one tile job that we, the guy just completely jacked it up. It was so bad. And I, I know we lost so much money and we didn't want to go back to the customer and say, Hey, we need more cash because that just did not feel good because it was on us. It was our guy really messed up. And it got to the point where we told him like, Hey, we can't pay you anymore. Like, you've got to finish this and fix it because you messed this up. Which might not be ethical from a HR perspective, but it is what it is. This was many years ago. Hopefully, like, statute of limitations is in our favor. I don't know. Don't report me. So, he gets the job done. I think we lost like five or ten thousand dollars on this one job. Like, it was insane. And the guy, like, we ran into him the other day, the client, at Like a little market in town and he's such a good guy and was like, so appreciative of us for holding to our word. But it was such a lesson that we have to be on top of our numbers and we wound up long story. We wound up transitioning them to 10 99s and found a way to legally do it in a way that felt really good to us. But all of this to say, we had this handyman business. Clearly, we were in over our heads doing a ton of work and at the end of the day, we barely broke even on it. We made our money through a PPP loan and through selling the business. It was, it was a struggle. It was a grind. But the two guys working for us, They made an insane income that year and it was just such a lesson of we have to take care of ourselves first. And with that business, I was not monitoring the P& L like I normally would. Because I had so many other things going on and because Eric was running most of the day to day. So I just did not have as firm of a grasp on it as I probably should have, but we, we didn't pay ourselves enough, really anything. And it was such a lesson. that we have to pay ourselves first. And the only way that you can really do that and know how to price your work and make sure you're paying your team appropriately is to have a grasp on those financials. And when we did that financial analysis, we quickly realized we were overpaying our team. We were spending a ton of money on workman's comp insurance, and that was sinking us. And We were paying gas for the vans and they were leaving the van running all day because they didn't want the AC to shut off or something. It was silly. So, so many lessons learned in that business. If you want, you know, some of our war stories from that, let me know. But I, I say all of that to say, Make sure you know your numbers because when you're not keeping a firm grasp on them, things like that happen and you wind up overcompensating or not hiring when you should. Maybe you're making too much money, quote unquote. I know that's like hard to believe, but maybe you should be investing more in your business or growing your team so that you can reach that next level. So it's just having a clear picture and I kind of view the P& L as your roadmap. If you're going on a trip, I mean back in the day it was a map, now it's GPS, and you're going somewhere you don't know, would you drive without a GPS on? I, I, I use a GPS when I'm going somewhere I do know just to like make sure I don't miss a turn because with kids in the car and thinking about a million things there, it's pretty likely that I'm gonna miss a turn. I'll put it this way, I have been so scattered lately thinking about so many different things that I made a pot of rice about a month ago. And it sat in our, like, pantry slash laundry room. And we've had a fly issue. And just realized why. Because they made home in the rice cooker. So the rice cooker got thrown away. Because it was so disgusting. And We no longer have a fly issue, but it took us a month to find it. So don't let your house get flies and don't let your business finances get out of control. Yeah, that's like embarrassing to say that we did that and we were fighting these flies, but we finally figured out why they were there. So I just want you to have control of your finances. And the best way to do that is just regularly checking your P and L. And if it's not something you have accessible, work to get it there. And if it's something I can help you with, please reach out, schedule a call. Let's chat and see how we can get to where you have a clean P& L that you can look at. The P& L and the financial statements are not just for your accountant to send to the IRS at the end of the year or whatever tax authority you have. It is for you to look at and run your business off of. The, the big corporations. They're not, they look at their P and L daily. And I mean, they have a full team that's literally entering the transactions as they come in. So don't think that you need to do it daily, but like, do you really think Elon Musk and I don't know, Donald Trump, that's super top of mind with the inauguration. Do you think they only look at their P and L when it goes on the tax return? Or do you think they're looking at it regularly? If you want to be successful in your business and reach that next level of growth, You have to, have to, have to have your, the very least your P& L and look at it regularly and make sure you're measuring margins, income, cash, and whatever metrics really are relevant to you and your business and your goals. And if that's something you need help figuring out, we can definitely chat through like the top metrics or, things you should be looking at in your business. So if that sounds helpful, please reach out and let me know. Well, I think I have covered this and beat this horse to death and shared all of my shameful stories of flies and handyman businesses and all the things. So I am going to leave you with that. I am going to talk next week about the most important advisor in your business. And this might be surprising. So this is the one person that you must have in your business to be able to make the best decisions. And I can't wait to share that with you. So that is it for now. Thank you so much for joining me. And if this episode resonated with you, please, please send it to somebody, you know, that you think might be a benefit from it and can grow their business finances. So that's all I have for you today. Let me know if I can help with anything and I'll see you next week. Thanks for joining me on this episode of the Energetic CFO Podcast. Remember, small steps can lead to massive rewards. By taking action, staying disciplined, and seeking knowledge, you can achieve your financial dreams. If you enjoyed this episode, please be sure to share, like, and subscribe. And don't forget to leave a comment with your thoughts and questions. Until next time, keep learning, keep growing, and keep thriving.