4 Questions Your Books Should Answer Each Month

As a business owner or freelancer, financial clarity is key to your long-term success. But managing finances can feel overwhelming unless you break it down into simple, consistent tasks. To make the most of your financial data, you should answer four essential questions every month. These questions aren’t just about the numbers—they help you understand the story behind your finances and make informed decisions that drive profitability and growth. Let’s dive into these four key questions your books should answer monthly:

1. How Has Profit Changed Month to Month?

Profit is the lifeblood of your business, and tracking it over time gives you a clear picture of your financial health. Monthly profit tracking reveals trends, helping you spot potential issues before they snowball or notice opportunities for growth.

Why It Matters: By comparing profit month to month, you can detect seasonal trends or changes in customer behavior. For instance, if you see a steady increase in profit, it may be a sign that your marketing efforts are working, or demand for your product is growing. On the flip side, if profit declines, you can investigate whether it’s due to rising costs, decreased sales, or other external factors.

Understanding profit changes also helps in planning for the future. If you’re considering expansion, taking on a new project, or reinvesting in the business, the insights from tracking monthly profit fluctuations can provide a strong foundation for making informed decisions.

Action Steps: Each month, compare your current profit to previous months. Ask yourself:

• What caused the fluctuations?

• Are the changes related to predictable trends (e.g., seasonality) or unexpected events (e.g., supply chain disruptions)?

• How can I capitalize on the positive changes and minimize the negative ones?

2. How Have Expenses Changed Month to Month?

Expenses are an unavoidable part of running a business, but they can easily get out of hand if not closely monitored. Tracking expenses month to month ensures that you’re not overspending in areas that don’t contribute to your growth and allows you to adjust your budget as necessary.

Why It Matters: By closely monitoring your expenses, you can spot any unexpected increases or wasteful spending. Maybe you’re paying for software or subscriptions you no longer use, or your utility costs are slowly creeping up. Identifying these shifts allows you to take control before your profit margins take a hit.

Changes in expenses could also indicate shifts in your business model or operations. For instance, if your shipping costs spike, it could suggest inefficiencies in logistics or an increase in sales volume that might require scaling up your fulfillment strategy.

Action Steps: At the end of each month, evaluate your expenses against the previous months. Consider the following questions:

• Have any expenses increased unexpectedly?

• Are there any new recurring expenses I need to account for?

• Is there room to cut back or streamline costs without sacrificing quality?

3. What Streams of Income Have the Highest Profit (Highest Income vs. Lowest Income)?

Understanding where your money is coming from is crucial to optimizing your business strategy. Each stream of income can perform differently, and evaluating the profitability of each allows you to focus on what’s working and reconsider or revamp what isn’t.

Why It Matters: Not all income streams are created equal. Some may bring in high revenue but come with equally high expenses, leaving you with little profit. Others may have lower revenue but are extremely profitable because they require minimal effort or costs. Analyzing which income streams generate the most profit allows you to prioritize your time and resources on what’s truly driving your business forward.

For example, if you run an online store and notice that your best-selling product has a razor-thin profit margin, it may be worth exploring ways to reduce production costs or focus on more profitable items. Alternatively, if a service you offer is both low-maintenance and highly profitable, you could allocate more marketing dollars toward that area.

Action Steps: Break down your income streams by profitability each month:

• Which product or service generates the highest income?

• What are the associated costs for each income stream?

• Where should I focus more effort to maximize profit?

4. Do I Make Enough Money to Outsource Something I Hate Doing?

Running a business often means wearing many hats, but not all of those hats fit comfortably. Tasks like bookkeeping, social media management, or customer service might take up valuable time and energy that could be better spent elsewhere. One of the best investments you can make as a business owner is outsourcing tasks you dislike or that drain your productivity. The question is: Can you afford to?

Why It Matters: Time is your most valuable asset. If you’re spending hours each week on tasks that you don’t enjoy or aren’t skilled at, it can hurt your overall productivity and, by extension, your revenue. Outsourcing these tasks frees you up to focus on what you do best—growing your business.

To determine whether outsourcing is feasible, you need to weigh the cost of hiring someone against the potential revenue you could generate by using your time more effectively. Often, the increased productivity and peace of mind make outsourcing worth the investment, even if it’s an added expense.

Action Steps: At the end of the month, assess your workload and finances. Consider:

• Which tasks take up the most time and energy?

• Could outsourcing these tasks free up time for higher-revenue activities?

• Do I have enough consistent income to hire help without negatively impacting cash flow?

By answering these four questions every month, you’ll gain a clearer understanding of your financial health and make more strategic business decisions. Tracking your profit and expenses, identifying the most profitable income streams, and determining whether outsourcing is feasible can help you optimize both your time and your money. Financial clarity isn’t just about managing your books—it’s about setting your business up for long-term success.