Finances aren’t sexy. But ignoring that part of your business can have a detrimental impact on your business.
Does this sound familiar?
“If I work hard, my finances will sort itself out.”
“I’m too busy to worry about the numbers now.”
“I don’t understand accounting; my accountant can sort it out for me when my tax bill is due.”
Simply put, these beliefs are wrong. Here’s why:
- If you work hard you may be successful. But that’s not a guarantee. You may work on things that aren’t profitable or that don’t move your business forward in any way. The key is to work hard on the right things. And you’ll only know what the right things are when you delve into the numbers.
- You may be too busy because you don’t have a handle on your finances. You may spend time on unproductive, non-profitable tasks without even knowing it.
- You can’t wait until the end of the year to analyse your numbers. It would be too late. If you want to succeed, especially in such an uncertain time as now, you should plan ahead, measure your performance regularly, and make strategic decisions as and when they’re needed.
So, what should you do instead?
Turn Your Vision into Measurable Numbers
It all starts with developing a vision and a plan for your business.
Once you’re clear on what you want to achieve, you should put numbers around your vision. For instance, develop a cashflow forecast and other performance metrics that would help track how you’re doing against your goals.
You should also measure your metrics on an ongoing basis and use the numbers to make the right business decisions. For instance, if you’re finding that one of your services is unprofitable, you may want to drop it like a hot potato, and channel your marketing bucks towards a more successful product. Or you may decide to work on improving productivity in your production team.
Which Financial Metrics Should You Measure?
There are many financial metrics to track. Trying to cover them all may be overwhelming. Instead, focus on a few ones at the start, and add more as you begin to understand your finances better.
Here are the most important financial metrics to start with:
Your Cash Flow
Staying on top of how much money is flowing in and out of the business is crucial. If you don’t plan ahead you may run out of cash just before a pay run, or you may have to say no to a marketing opportunity that can bring in thousands of dollars in the long run.
Keep on top of your outstanding debts and how fast people pay you. If you don’t follow up frequently, you may not be able to recover the debts at all. There’s a saying that people pay those who scream the loudest.
Everybody is feeling the pinch right now and many businesses are holding on to their money in fear of running out. That is flawed thinking because if everybody stops paying each other, the economy would halt. But if we keep on paying each other, the economy can keep on turning and recover over time.
As much as we would like to help others out, we need to think about ourselves as well.
We often put too much of a focus on increasing sales, but forget about profitability. For instance, if you’re in the service industry and things aren’t as busy as usual, you may spread out the work to fit the time you have available. That would increase your labour bill, making the business unprofitable. Instead, look for ways to be more productive and rather spend your extra time on bringing in more clients.
Take Control of Your Business Finances
Planning your finances doesn’t come naturally to everybody. Just like we may need your help with a haircut or drawing up a plan for a new house, so do you need our help to make sense of your finances. Get in touch with us so we can help you to stay on top of your finances and take control of your business’ destiny.