A curious thing happens to entrepreneurs in the spring of every
year. You wake up one day and realize you had better figure out how
much money was made last year in order to pay your taxes. But wait,
shouldn't a business owner already know how much money he or she
made last year, last quarter, or last month? Don't wait. Develop
your financial plan today.
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. You need to know what your net profit is. If you don't,
there's no way you can know how to increase it.
To be successful in business, you need to make a financial plan
and check it against the facts on a monthly basis, then take
immediate action to correct any problems.
Here are 8 steps you should take:
Create a Financial Plan:
Estimate how much revenue you expect to bring in each month, and
project what your expenses will be. If you need it, get help from
business planning books, software, or an accountant.
Review the Plan Monthly: Even
if time is taken to prepare a financial plan with profit and loss
projections, it often sits in a desk drawer. It's not enough to have
a plan -- you have to review it regularly.
Lost Profits Can't be Recovered:
When comparing your projections to reality and finding earnings too
low or expenses too high, the conclusion often is, "I'll make it up
later." The problem is that you really can't make it up later; every
month profits are too low is a month that is gone forever.
Make Adjustments Right Away:
If revenues are lower than expected, increase efforts in sales and
marketing or look for ways to increase your rates. 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. 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. You can better use your talents for generating
revenue than for running errands and filing.
Pay Yourself a 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.
It's About 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.
R