The Bottom Line - Your Financial Statements
You wake up one day and realise you had better figure out how much money you made last year so you can complete your tax returns. But wait, as a business owner, shouldn't you already KNOW how much money you made last year, last quarter, or last month?
If you don't keep track of how much money you're making, you have no idea whether your business is successful or not. You can't tell how well your marketing is working. And I don't just mean you should know the amount of your total sales or gross revenue; you need to know what your gross and net profit is. If you don't, there's no way you can know how to increase it.
If you want your business to be successful, you need to make a financial plan and check it against your actual results on a monthly basis and then take immediate action to correct any problems.
Here are the steps you should take:
Create a financial plan for your business. Estimate how much revenue you expect to bring in each month, and project what your expenses will be. If you need help, hire a Business Coach, get a planning software- do whatever it takes but come back with the numbers.
Review the plan monthly. Many business owners take the time to prepare a financial plan with profit and loss projections, and then they often let it sit on the shelf. It's not enough to create your plan; you have to review it regularly.
Remember that lost profits can't be recovered. It's like time- once you've spent it, it's gone forever! When entrepreneurs compare their projections to reality and find earnings too low or expenses too high, they often conclude, "I'll make it up later." The problem is that you really can't make it up later; every month that your profits are too low is a month that is gone forever.
Make adjustments right away. If your revenues are lower than expected, increase your efforts in sales and marketing or look for ways to increase your prices. If overhead costs are too high, find ways to cut back. There are other businesses like yours around. What is their secret for operating profitably?
Think before you spend. When considering any new business expense, including marketing and sales activities, evaluate the increased earnings you expect to bring in against its cost before you proceed to make a purchase. Always conduct a marketing campaign break-even analysis. You can often increase your profitability simply by delaying expenses to a later month, quarter, or year.
Don't be afraid to hire. Retailers and restaurateurs wouldn't consider operating without employees, but many service businesses limit themselves by being understaffed. Almost any business can benefit from hired (or contracted) help. Business owners can almost always better use their talents for generating revenue than for running errands and filing.
Pay yourself a regular salary. If you are incorporated, you may already be doing this. If not, allocate an amount to owner's compensation on a monthly basis. Each month that your business meets its profitability goal, pay yourself the full amount. When you miss your target, dock your "pay" and when you exceed it, pay yourself a "bonus." Writing yourself a monthly paycheck will give you a strong incentive to keep your business profitable.
Evaluate the success of your business based on profit, not revenue. It doesn't matter how many thousands of dollars you are bringing in each month if your expenses are almost as high, or higher. Many high-revenue businesses have gone under for this very reason - don't be one of them.
The bottom line is: Review your bottom-line and your financial statements on a regular basis to ensure you are managing what you already have in order to gain mastery of your business.