Business owners have so much to do on any given day that sometimes they don’t realize which systems are adding to their financial health and which systems could be hindering them. By reviewing and updating how you do things in your business, you create the potential to make more money with less stress. Have you reviewed the following systems recently?
What is your bookkeeping system?
All too often, busy entrepreneurs leave the bookkeeping to last and wonder why, at the end of the year, they have a money problem they didn’t anticipate. It could be a big tax bill that was not saved for or a realization they were not collecting enough from their clients or were paying for a service they had long stopped using.
Financial records, when fully up to date, are the road map to profitability. The data collected gives us insight into how we can best run our companies.
What are your current best options to increase revenue?
Without revenue, a small business cannot exist. While not the only factor, increasing your gross revenue can go a long way in helping you achieve your financial goals.
It is important to strategically evaluate and fully understand the lifecycle of each of your revenue-generating products. You will find most products are in the cycle of introduction, growth, maturity or decline. Each of these stages impacts the amount of revenue generated. By keeping a declining product for too long, you could find yourself with nothing to sell. Where do your products fit in this cycle?
How will you make more money in your business?
Even if we sell more, our companies may not be profitable if our expenses do not support the delivery of the sold product or service. Business profit is simple math. Money in, plus or minus money out, equals profit or loss. Let’s focus on being profitable, and that starts with knowing our numbers.
How do you track your expenses?
Take a realistic view of your expenses and ensure you build your business model to cover all expenses. Now is a great time to revisit lessons learned from our Grade 7 math teacher. Around this time we were introduced to fractions. 1/2 = 2/4. We learned about balance. Do your profits outweigh your expenses? If not, how can you reduce your expenses or increase your profit?
What system do you currently have in place to monitor, approve and manage expenses?
How are you balancing your business debt?
It is rare for a small business owner to start and run a company without ever having to incur any debt. It is essential to understand what debt is and how to use it to your advantage. Equally as important is how to manage the debt you have and have a plan to become debt-free.
When making a purchase, ask yourself: Is this a “nice to have” or a “have to have”?
Do you understand your financial statements?
Every small business has (or should have) three basic financial statements—income statement, balance sheet, and statement of cash flow. You’ll learn everything you need to know about the financial health of your business from these three statements. If you take the time now to get comfortable with them, you’ll make confident, sound business decisions based on facts and protect yourself from fraud.
Are you compliant?
Having to pay corporate tax is a good problem to have; it means that you are making money. Trying to get out of paying taxes by spending money on personal items or things you don’t really need just to reduce your profit is not a great strategy.
That being said, there are definitely tax advantages to small business ownership. Talk to your accountant early and often. It is too late the day before taxes need to be filed to make a good business tax decision.
How well do you know your current cash position?
Business growth often leads to a negative cash position that can catch even the savviest entrepreneur off guard. Fully understanding how cash moves in and out of your business strengthen your ability to make good business decisions.
How you strategically spend or save your cash will determine your organization’s overall health. This includes the area of finance and how you can market, develop your products and team, and how hard you personally have to work. Small changes in cash management can have a significant positive impact. Having a system for measuring and monitoring cash is essential.
How do you compensate yourself?
It’s not enough to “show a profit” on the books at the end of the year if “you”, the business owner, were not well compensated for your effort. At the very least, you need to be getting something of personal value as a reward for all your hard work. It is all too common to be paid less than market wage or no wage at all when you own a business or, even worse, to never have meaningful time off.
As a business owner, these rewards may be owning the car of your dreams or taking annual vacations with your family. Saving cash into your own bank account for your personal future use can be a great motivator for days when things are hard. Giving yourself a reward may feel counter-intuitive to making more money in your business. The reality is you can only go so long without getting paid or having time off. Your company is stronger when you are happy, healthy and well-compensated for your efforts.
How will you make money in your business?
Which of these topics will you address first? Which one will have the biggest impact on the financial health of your company?
Until next time, enjoy your Entrepreneurial Journey!