Small businesses that survive know the numbers of their business. The number of potential clients, the number of products in inventory, and the number of prospects it takes to land a sale are all examples of the many different quantifiable aspects of running a business. But at the end of the day, some of the most important numbers revolve around the financial data.
Managing the finances of your business is extremely important. You have heard statements like, “Cash is king!” Well, that’s because it’s true! Without cash, you are out of business and you can’t be assured of sustainable cash flow if you aren’t managing the numbers. So, lets take a look at some ways you should be managing the financial aspects of your business.
Records and bookkeeping – Business failure rates are high and a lot of the failures are caused simply because of poor record keeping which made for poor decision making. If you are the type of person who doesn’t balance a checkbook or at least take time to review monthly bank statements, you are going to find this task difficult at best. In the ideal world, your books will be up to date every day when you turn off the lights. This is tough to do but it can be the difference between going with your gut or basing your decisions on solid financial data. If bookkeeping is just not your thing and you have enough cash flow, you can hire this out. However, you still need to be tuned into the numbers well enough to analyze them and make sure the bookkeeper is doing their job properly.
Get professional help – It’s hard to find many people that consider reading tax code a good time. You don’t make money in your business by learning accounting rules or tax regulations. Leave this to the professionals. Of all the money you will spend to manage and grow your business, an accountant is one of the best investments you can make. You can handle the bookkeeping but, a good accountant will be able to make sure you are tracking the right expenses in the correct manner and also see to it that you get the most benefit from a tax strategy. Bite the bullet, spend the money and let the professionals guide your financial planning.
Learn from the past & project the future – The great thing about bookkeeping is it creates a detailed history of your business. You can see what has gone well and what hasn’t. You will know which customers are profitable and which are not and what products sell better than others. All these historical records allow you to make scientific predictions of how your business will perform in the future. If you are not doing cash flow projections, you are making your business management much harder than it needs to be. A good rule of thumb is to keep at least 18 months projected for your business at all times. This will allow you to see shortcomings long before they become a crisis and also allow you to gauge how much money should be set aside for future plans. Check out a class at your SBDC and download the simple cash flow projection worksheet if you are not familiar with how this works.
Maintain a Plan B – Business goes at it’s own speed and rarely does it perform just the way you expect. A seasoned entrepreneur will constantly be considering alternate plans. What if a major client leaves? What if a supplier goes out of business? When our product becomes obsolete, how will we replace or upgrade it? All these questions and more should be bouncing around in your head as a business owner and each question should have some sort of contingency. Lack of planning and crisis management are very expensive ways to do business.
Minimize risk – Entrepreneurs embrace risk, they laugh in the face of speculation, right? Wrong. Successful entrepreneurs will tell you it’s not about taking a leap and hoping all things work out. It’s more about minimizing risk and making calculated decisions at every turn. True, you cannot eliminate risk but you can reduce it. Unbridled enthusiasm and careless management styles that don’t consider the numbers and the facts at every turn, normally result in very costly mistakes. Always pause to check the science (and the numbers) behind your decision before implementation.
Take care of the boss – Financially, the boss (you) takes it in the shorts more than anyone else. In many cases, owners will not receive a paycheck from their business during the start up phase of the business. This practice cannot go on forever. As the owner, you still have to take care of your basic needs and make your work worthwhile. Getting paid should be a high priority. Another area many entrepreneurs overlook, normally due to limited cash flow, is retirement. There are no corporate retirement programs for small business owners unless you set them up yourself and regularly deposit funds. Do this early. Make it a habit and increase your contributions as the business grows.
Need help organizing a financial plan for your business? The counselors at your local SBDC are your best first phone call. Set up an appointment to discuss any of the points in this article and maybe bring a few points of your own. Don’t be frustrated or embarrassed by your lack of accounting skills, nobody is born an accountant. The SBDC can get you on track with simple, understandable advice on how to manage the financial aspects of your business.