Learn

How do I know how my business is doing?

Time:Set the timer to 60 minutes for the Learn section.

“I Don’t Know” (No video? Read page 60.)

Discuss:Without records, how would you know if your business is profitable? How would you know if you had been paid by all of your customers? How would you know your total expenses?

Read:QUESTION OF THE WEEK—How do I know if my business is making a profit?

ACTION OF THE WEEK—I will track all income and expenses on a log every day from now on.

During this meeting, we will learn skills to help us answer this question and perform this action.

Then, during the week, we will actually track our business income and expenses to see if we are making a profit. Let’s read the profit section of the Business Success Map.

Why should I keep written records?

Practice:For this practice, do not write down any information. With a partner, take one minute to read on page 61 about Daniel’s furniture business. Do not write down any information. Then return here.

Discuss:Try to answer these questions from memory:

• How much money did the business spend this week?

• How much money did the business take in this week?

• How much profit or loss did the business have this week?

Could you remember the income, expenses, and profit without looking? How important are written records?

Practice:Now, with your partner, go back to the summary of Daniel’s furniture business on page 61 and add up the expenses, income, and profit. Would it be easier if the business owner had used a log to record the numbers?

How do I develop the habit of keeping records?

Discuss:Successful business owners keep daily records. Do you enjoy keeping records? Is it a habit for you? What prevents you from keeping records?

Successful business owners keep daily records.

Tools for keeping records:

• Copies of income and expense log and income statement on page 55

• Ledger book

• Notebook at point of sale

Read:Sometimes it can be hard to start a new habit, even if we know it is important. Here are five strategies for record-keeping success:

1. Remember the “why”—You can find motivation by thinking of the people who will benefit from your record keeping, such as your children.

2. Develop skills—You may need new skills to be good at keeping records. Our discussion today will help you learn these skills.

3. Choose friends, not accomplices—A friend is a person who helps you do the right thing. An accomplice is someone who helps you do the wrong thing. Ask those around you, including your spouse, to help you continue keeping records.

4. Use rewards and penalties wisely and sparingly—Reward yourself for keeping daily records.

5. Get the tools—Can you imagine digging a well without a tool? Make sure you have the tools to do what needs to be done. What tool will you use to keep records? We will learn about some tools later in this meeting.

Discuss:How will we each use these strategies to build the important habit of keeping good records?

How do I keep an income and expense log?

Read:An income and expense log is a common business form. We should use it every day to record the money coming in and the money going out of our businesses.

Remember Daniel in the “I Don’t Know” video? He started keeping track of his income and expenses by using the following steps.

Practice:With a partner match the numbers in this table to the numbers in the income and expense log on the following page.

STEPS TO CREATE AN INCOME AND EXPENSE LOG
	1 Daniel has 1500 in his business cash box. He put that amount as his starting balance at the beginning of the week.
Monday	2 Sold 4 chairs. In the income column he puts 200. 3 Adds 200 to the cash balance. New balance = 1700. 4 Paid 100 in rent. In the expense column he puts -100. 5 Subtracts 100 from the cash balance. New balance = 1600.
Tuesday	6 Paid 500 to Maxwell. In the expense column he puts -500. 7 Subtracts 500 from the cash balance. New balance = 1100.
Wednesday	8 Sold a table and chair set. In the income column he puts 400. 9 Adds 400 to the cash balance. New balance = 1500.
Thursday	10 Sold bedroom furniture. In the income column he puts 1000. 11 Adds 1000 to the cash balance. New balance = 2500.
Friday	12 Bought materials. In the expense column he puts -1500. 13 Subtracts 1500 from the cash balance. New balance = 1000.
Saturday	14 Sold a table. In the income column he puts 400. 15 Adds 400 to the cash balance. New balance = 1400.
	16 Daniel finishes the week with 1400 in his business cash box.

Read:Daniel wrote down his income and expenses every day. His income and expense log looked like this at the end of the week.

DANIEL’S FURNITURE INCOME AND EXPENSE LOG: AUGUST 14–20
Date	Description	Expense		Income	Cash Balance
Daniel’s business starting balance					1500 1
Monday 14/5	Sold 4 chairs			200 2	1700 3
Monday 15/5	Paid rent		-100 4		1600 5
Tuesday 16/5	Paid wages to Maxwell		-500 6		1100 7
Wednesday 17/5	Sold a table and chair set			400 8	1500 9
Thursday 18/5	Sold bedroom furniture			1000 10	2500 11
Friday 19/5	Paid for materials		-1500 12		1000 13
Saturday 20/5	Sold a table			400 14	1400 15
Daniel’s business ending balance					1400 16

Discuss:In the video, Daniel’s employee, Maxwell, said he had not been paid. How does this log help Daniel resolve that issue?

What is an income statement?

Read:Another important business form is the income statement. Remember how hard it was to calculate profit from memory during our activity? An income statement will help! It summarizes all transactions during a period such as a week, month, quarter, or year. The summary tells us whether the business is profitable during that period.

An income statement shows:

• Income.

• Expenses.

• Profit (or loss).

Practice:With a partner match the numbers in this table to the numbers in the income statement on the following page.

STEPS TO CREATE AN INCOME STATEMENT
Income	1 For total sales of chairs he puts 200. 2 For total sales of tables he puts 400. 3 For total sales of dining room sets he puts 400. 4 For total sales of bedroom sets he puts 1000. 5 He adds his total sales. His total income for the week: 2000.
Expenses	6 For the cost of rent he puts -100. 7 For the cost of materials he puts -1500. 8 For employee wages he puts -500. 9 He adds his total expenses. Total expenses for the week: -2100.
Profit (or Loss)	10 He subtracts his expenses from his income: 2000-2100=-100.

Discuss:What does this income statement tell us about Daniel’s business?

What period is covered by this income statement?

Was Daniel’s business profitable this week?

Can Daniel operate his business like this every week? Why or why not?

Successful business owners seek daily profit.

Daniel’s Furniture BUSINESS Income Statement (Monday–Saturday)
Income
Sales of chairs	200	1
Sales of table	400	2
Sales of dining room set	400	3
Sales of bedroom set	1000	4
Total Income	2000	5
Expenses
Rent	-100	6
Materials	-1500	7
Employee wage	-500	8
Total Expenses	-2100	9
Profit (or Loss)	-100	10

How do I create an income and expense log and an income statement?

Read:To know if our business is profitable, we need an income statement. To create an income statement, we need the income and expense log.

Practice:You have seen how Daniel kept an income and expense log and how he used that to make an income statement. Now, work with a partner to make an income statement for Joseph. Complete the income and expense log and the income statement on the next page.

1. Create an income and expense log for Joseph’s construction business.

2. Create an income statement for Joseph’s construction business.

3. Once you try this, if you need help creating the income and expense log or the income statement, turn to page 56 for the answer key.

Monday Collected 50% down payment on a job: 2000

Tuesday Paid 1500 for materials.

Wednesday Worked on the job.

Thursday Worked on the job.

Friday Paid another 1000 for materials.

Saturday Finished the job. Paid an employee 500. Collected remaining 2000.

Income & Expense Log from Monday–Saturday
Date	Description	Expense	Income	Balance
Business Starting Cash Balance				3000
Total Expenses & Income

Joseph’s Construction BUSINESS Income Statement (Monday–Saturday)
Income
Total Income
Expenses
Total Expenses
Profit (or Loss)

Discuss:What did you learn about Joseph’s business from seeing his income statement?

Small business owners everywhere rely on the power of these forms. Do any of you keep income and expense logs or income statements? If so, how has this helped?

Practice:If you don’t already keep records, copy the income and expense log and the income statement from above into your business notebook.

Read:Record your income and expenses every day, and at the end of the week, create an income statement. Continue to do this every day and week as your business grows. You will need these business records for the group meetings in weeks seven and eight.

Learn how keeping records helped Vangelis grow his business. Watch the success story “Vangelis: Street Magician.” (No video? Continue reading.)

Income & Expense Log from Monday–Saturday
Date	Description	Expense	Income	Balance
Business Starting Cash Balance				3000
21	Down payment		1 2000	5000
22	Materials	2 -1500		3500
25	Materials	3 -1000		2500
26	Paid employee	4 -500		2000
26	Final payment		5 2000	4000
Total Expenses & Income				4000

Joseph calculates his new balance as he adds each new entry in the log.

¹ On Monday, Joseph collected a down payment, so that goes in the income column.

² For Tuesday, the amount Joseph paid for materials goes in the expense column.

³ For Wednesday and Thursday, Joseph worked on the job.

⁴ For Friday, the amount Joseph paid for more materials goes in the expense column.

⁵ For Saturday, the amount paid to an employee goes in the expense column. The amount collected for finishing the job goes in the income column.

Joseph’s Construction BUSINESS Income Statement (Monday–Saturday)
Income
Down payment	2000
Final payment	2000
Total Income	4000
Expenses
Materials	-2500
Employee wage	-500
Total Expenses	-3000
Profit (or Loss)	1000

At the end of the job, Joseph transfers the amounts to an income statement to see how much he made on the job.