The current world wide economic downturn has, again, highlighted why small business owners must actively scrutinise their finances. Many small business owners still rely on old and/or out of date information.
Last week, I recently met with a new client who had experienced a 25% decline in their sales. When I asked them about their cost structure, they admitted that they had no idea and hadn’t had any financial statements prepared since 2006!!
Not only had they ignored the tax man for 3 years, but it’s also poor business practice.
Recessions often provide a “wake-up call” for many business owners as it forces them to evaluate what they are doing. In the current uncertain climate there is very little excuse for ignoring your key financial indicators.
One efficient way to understand your business’ financial performance is to prepare a simple cash book. For as little as $100 per month, you can generally get a book-keeper or accountant to do this for you.
Understanding your current profitability, cash flow and break-even points will help you to review your spending and help you to set budgets. This may include putting money aside for tax liabilities and owners’ drawings/salaries.
I have seen far too many small businesses suffer because their owners failed to meet their tax obligations or pay themselves.
Talk with your accountant. They should be able to advise you how much to set aside for tax – I accept that this may reduce cash flow in the short term but it may avoid unnecessary surprises later. Consider setting a regular amount aside in an interest bearing deposit account or use your credit card for some expenses to take advantage of the interest free periods that many credit card companies now offer.
Also examine your expenditure as there may be ways to easily reduce costs too. I have put a complete stop to anyone purchasing anything in my businesses without my express approval.
This had an immediate positive impact on our stationery, printing and postage expenses. Remember it’s your money that your employees are spending…not theirs!
I am currently consulting with a client who “shouted” their staff morning tea twice a week. On my advice, she now buys the ingredients and asks her daughter to bake home-made muffins and she also now provides on-site coffee facilities. She is delighted that she now saves over $700 per month from just this one simple change. What small changes could you make?
But be careful…many small business owners cut back on the wrong expenses. Marketing and sales remains an important area for many of them. However, I have lost count of the number of clients who blatantly waste money on marketing and advertising campaigns that simply do not work. They simply throw more money at it, hoping that the ‘phone will ring. For more marketing tips, visit www.themarketingdude.com
Is it time that you reviewed your business finances? Who knows…a few hours of your time may result in some pleasant surprises.