A new business year should be a new start for your Small Business. You need to begin with a positive direction, build on past successes and improve on things that need improving.
It should begin with a budget. Many business owners don’t like developing a budget but it is crucial you have one. It helps you manage and grow your business. Your budget contains a few key numbers and you should always be aware of what they are. These numbers are:
Your Net sales
– Your Cost of Goods Sold (COGS)
= Your Gross Profit (sometimes called a Margin)
– Your cost of indirect labor (those you pay whether you have work or not)
– Your business expenses (those other than COGS)
= Your net profit or loss
That is your budget. How you get those numbers is the challenge and you should be able to gather them from the Profit and Loss (P&L)Statement (Earnings) you give your Accountant.
Another key thing to remember is your Cash Flow. In simple terms, Cash Flow is nothing more than the money you have on hand to pay your bills and employees every month. You have to have enough cash. You can have all of the outstanding receivables, money owed you by customers, in the world. However, if you don’t have the cash in your bank account, then you don’t have it and those receivables have little value toward paying your bills.
Review your Receivables. Look at how long it took your clients to pay you. The longer it takes the less cash you have. As stated previously the less cash you have the more difficult it is to operate. You can have literally millions of dollars due you but if you don’t have the cash to pay your bills and employees you can easily be forced into bankruptcy. Manage your receivables accordingly. Customers who take too long to pay should be reviewed to determine if they are worth doing business with. You should look for ways to speed up your receivables such as adding penalties for receivables unpaid after 30 days.
Review your Marketing efforts. You should be tracking where your customers come from, what they bring you in terms of revenue and how diverse they are. You don’t want all of your customers to come from the same place. An economic downturn from that place could spell disaster for your business. Diversity in customer sources, spread as evenly as possible, helps ensure business sustainability even in the most difficult of economic times. Remember, Marketing is NOT Advertising. Advertising is a tool of marketing.
Your existing Customers are also important and should never be ignored. What do you do to retain them? How do you ensure they come back. Tracking your customers for repeat business helps you measure the effectiveness of your customer service retention efforts.
Your business consists of 8 key areas, each of them with a financial responsibility to your business. If you have a function in your business that is not one of these, consider outsourcing it. This is especially critical for businesses with fewer than 50 employees. Functions like Accounting, Bookkeeping, Human Resources and IT should be strongly reviewed for the value they bring to your business, the cost and whether or not you should outsource them. The 8 key functions and their responsibilities are:
Marketing (Increases sales) Increase revenue through identifying new 1st time opportunities
Sales (Increases Gross Profit) Closes a targeted number of new 1st time sales
Customer Service (Increase Sales) Upsells a percent of new sales with value added products or services
Customer Retention (Increase Gross Profit) Retain a percentage of previous years customers while also retaining a percentage of previous years revenue
Waste Management (Reduce Costs) Increase productivity with no additional resources used while eliminating a percentage of waste
Team Development (Contain Cost) Develop performance goals and compensation for indirect labor
Product Management (Contain Cost) Measure processes to develop improvement opportunities in a designated percentage of all products
Production (Contain or Reduce Costs) Find alternative processes, sources, and materials as well as reduce error to reduce COGS
Taking the time now to plan for your new business year is critical to your success. You have to touch on all of these points because, without all of them, your business is out of balance. As with anything out of balance, it is prone to failure. As a busines owner you must understand and pay attention to all of these things in order to be successful and to sustain that success. Review and plan well.
Want to know more? Ask me, I’m here to help.
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