This is the 5th of a 5 Part series on getting and keeping your business organized
And now for the hard part. This is the diagnostic, truth revealing, red corpuscles of your business. From your financial reports, you can control the viability of your business, read historical events and predict future outcomes by carefully scrutinizing and summarizing your data. Whether it is meaningful or not, depends on how you enter data.
Let’s take a look at meaningful inputs. First of all, keep in mind GIGO. That is garbage in, garbage out. If you enter inaccurate information into your business system, the information you get out of it will be inaccurate and irrelevant. It could even mislead you into wayward strategies.
Now that you are providing good information, keep up with it. One of the biggest challenges of small businesses is keeping financials current. When you’re out there working long days and being a part of the process, it is difficult to find the energy in the evening to keep the books up to date. And maybe, you’re not quite where you need to be financially to hire someone to do it for you. Paying a bookkeeper is basically eating into your profits. It can wait. But, not really.
Each month (or quarter), depending on your business structure and cash flow, you need to know what your profits or losses are. The longer you wait, the deeper you risk sinking into deeper debt or the longer you could have been putting off hiring someone to do your books if the cash flow was healthy enough.
My recommendation is you contract with a local bookkeeper to do your books as soon as you can afford to pay one. Structure your agreement so you furnish them the information they need for receivables and payables. Do not yet give them electronic limited user access to your bank account for statement downloads. Download them yourself and email them. You will still have some paperwork to do to organize bills, invoices and statements, but at least it will keep you up to snuff with your business giving you a gut feel for what it should look like at the end of the month.
Make sure you monitor your cash flow weekly or even daily depending on the revenue size of your business. At the beginning or end of each day, take a look at your income and expenses, looking ahead so you will have a heads up about what needs to be adjusted. If your income is slacking, make sure you work with your bank to fill in with a line of credit to cover those slumps in revenues. Pay off the line as soon as you can.
One of the critical habits of small businesses is the cycle of marketing and advertising when business gets slow resulting on periods of inadequate revenues. The time to advertise (or network or market…) is before you slow down. How do you know when the slow times are coming? By reading your cash flow statement, looking at your funnel of opportunities, sales trends, etc. This can and must be forecasted. Decision making ahead of a downward curve allows for smart adjustments to expenses which leads to successful companies.
Expenses are either variable or fixed. Variable are those expenses that can be manipulated, adjusted and controlled. These are the ones you pay special attention to when you need to cut back, like business lunches, some advertising, etc. The fixed expenses are your lease or mortgage payments, equipment payments and any payments you have that the collateral is required to produce your products.
No matter what size or type of business you run, pay attention to the financial aspects of it frequently. How frequently, you will figure out as you go on. Don’t leave it to the last minute when you’re out of cash or when you’ve had an unexpected major expense and have to scramble for cash. Know the cash flow of your organization and be ready to react without losing a beat.
How do you control your cash flow?
Share your ideas
Thank youSocial tagging: asset > assist > balance sheet > income > liability > loss > profit