What is your Financial Strategy?

Is your business doing well? Do you have your finger on the financial “pulse” of your business? Do you have the financial tools to see what it takes to grow your business this year by 30% or 40%?

The fear that many business owners have around financial management is that it is difficult, complicated, mysterious and it’s the accountants job. Wrong!!!

Strategic financial management of your business is relatively straightforward. The challenge is in establishing good systems and procedures for financial reporting.  One of the many reasons that businesses fail is often due to poor accounting practices. In these failed businesses the owners never took the time to regularly track and measure the key numbers in their business.  Contrary to popular belief, financial management does not require a degree in accounting or an MBA.  The basic fundamentals are the same, whether you are Apple or Joe The Plumber.

Starting Point

During the Conception Stage of any new business, owners usually fund their businesses by mixing their personal money with borrowed funds. This is a dangerous practice and one that can cause you to unknowingly “embezzle” from yourself.  To begin with, separate your business funds from your personal funds, and resist the temptation to pay business expenses from anything other than your business account.

Next, spend some time with your accountant or CPA and learn how to properly read your Income Statement.  Then, do a regular and complete analysis of the Income Statement at least monthly. A complete analysis should include a review of all general ledger accounts which support the Income Statement.  Every item in the general ledger should be documented and properly accounted for.  I have found where a general ledger item was documented as  ’Unknown’, or  all the purchases from the company credit card were simply labeled as ’Credit Card’ without documenting each item such as office supplies, computer hardware, etc.

Along with the Income Statement educate yourself on the Cash Flow statement. If you are a cash-based business this might be seem redundant, but for all businesses this is critical. You should know the state of your cash flow at all times, especially when your business is growing– the reason is Growth Eats Cash.

Death and Taxes

Are taxes killing you? Most business owners are not ‘killed’ by paying taxes.  However, it is the unpaid or unfunded taxes that often ’kill’ a business. Avoid the habit of deferring business taxes which could endanger the financial health of your business.

According to financial expert Dave Ramsey, “If you don’t keep up with your taxes, that alone will close you down. If you are in a product business where you collect, and deposit, sales taxes and you “borrow” that (sales tax) money to operate, you will fail. If you have employees and don’t deposit the proper amount withheld from them for taxes, you will fail.”

Create a business “tax” account strictly for your quarterly estimates as required by the IRS and other taxes – this can be worth far more than the time and effort it may take.

Know your Numbers

Every business owner should know these critical numbers in their business, and how to forecast and manage these numbers.  Start first with your desired Net Profit  .  .   .

Net Profit

Fixed Costs

Gross Profit

Gross Margin %

Total Revenues

Revenue/Customer

Total Customers

Retained Customers

New Customers

Conversion %

Leads