Aug 2019 Simple steps to manage and grow your business finances in 2020
We all decide to run our own business for many reasons, but we also want to earn a worthwhile return on investment (wages and net profit), so to ensure that happens, we must understand our financials and regularly monitor and manage them.
To understand the money side of your business, you don’t have to be a financial expert, you just need to work with a good bookkeeper to help you set up, analyse and monitor the necessary reports regularly. The pay-off will be more peace of mind, greater profits and a big smile.
Review P&L each month
I know I have harped on about looking at your Profit & Loss (P&L) regularly in other articles, but it’s for good reason. By reviewing your P&L Statement each month you will see what income (or sales) your business earned, what expenses were incurred, and how much real profit you’re making or losing. A P&L statement will reveal if the income received is covering monthly costs and leaving a profit. Some costs like vehicle or equipment repayments and business loans won’t appear in this report and will appear in your balance sheet, so a quick look at your balance sheet will show those amounts. Looking at your P&L with a bookkeeper or accountant initially is a good idea, so they can answer some questions you may have. Being aware of your income and expenses each month will help you create an action plan for the following months, so you start seeing the result you want to see.
Forecasting Profit for 2020
Creating a Profit Forecast is as crucial as reviewing your P&L. It involves estimating your 2020 P&L at the beginning of the financial year so you have sales, expenses and profit targets to aim for. It also helps you make clearer financial decisions because your forecast has allowed for any growth in sales and additional expenses (like a new employee) and shows what the estimated profit will be at June 30, 2020. In other words, you are planning for your future and eliminating the big scary surprises. Monthly sales and profit targets are a great way to keep managing growth. It you haven’t created a forecast, and need some help, your bookkeeper, business coach or accountant can help.
If cash flow is tight, I would suggest you set up a Cash Flow Forecast so you can see what money is coming in each month and what is going out and plan your actions so you don’t have any surprises. It will also prompt you to make calls to clients that owe you money, complete projects faster so jobs get paid and work out a payment plan for larger amounts you owe.
Also saving money to invest in the business is a worthwhile strategy like saving for a deposit to buy a warehouse or buying equipment that will make on site procedures more efficient. So planning to put money aside into another account that you don’t touch can be a good monthly or quarterly action.
Negotiate Better Prices
When was the last time you created a report of all product purchased over the past 12months, then called some of your Suppliers to negotiate some better prices (especially on products purchased in greater quantities throughout the year). It is a worthwhile strategy that will surprise you with the accumulated savings.
Knowing what your business requires in sales to cover costs and make a profit is step one, then monitoring and managing your business by regularly seeing if it’s on track for a good financial result can be achieved by the simple monthly strategies mentioned.