A curious thing happens to entrepreneurs in the end 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
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
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 peso 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.