Don't Wait for Tax
Time to
Look at the Bottom Line By C. J. Hayden
If you want your small business to be
successful, make a financial plan and check it against the facts on a monthly
basis -- then take immediate action to correct problems. That's the advice of
business coach C.J. Hayden, author of Get Clients Now!: A 28-Day Marketing
Program For Professionals & Consultants (AMACOM, 1999).
According to Hayden,
"Entrepreneurs tend to be optimistic mavericks with a high tolerance for
risk. Many ignore expert advice, and donšt even look at their financials until
tax time, unless the checking account is overdrawn." Here are Hayden's tips
for achieving year-round profitability.
Create a financial plan for your
business. Know 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 accountant.
Review the plan monthly. This is
where most small business owners fail. Even if they have taken the time to
prepare profit and loss projections, they often let them sit in a drawer. It's
not enough to have a plan -- you have to review it regularly.
Lost profits can't be recovered.
When entrepreneurs compare their projections to reality and find earnings too
low or expenses too high, they often conclude, "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. If
material, labor, or overhead costs are too high, find ways to cut back. There
are other businesses like yours around. Can you learn from them? 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 against its cost before you proceed.
Don't be afraid to hire to increase
profits. Retailers and restaurateurs wouldn't consider operating without
employees, but many small businesses limit themselves by being understaffed.
Almost any business can benefit from hired help. Owners of small businesses can
often better use their talents for generating revenue than for running errands
and filing.
Pay yourself a regular salary.
If
you are a sole proprietorship, here's how. Allocate an amount to owner's
compensation on a monthly basis. Each month 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.
Remember that the way to evaluate the
success of your business is profit, not revenue. It doesn't matter how many
thousands of dollars 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.
About the Author:
C. J. Hayden is the author of Get
Clients Now! (AMACOM, 1999) and The One-Person Marketing Plan Workbook (Wings,
1997). She is a San Francisco business coach who has taught hundreds of people
how to make more money with less effort. Her company, Wings Business Coaching,
specializes in working with small business owners, self-employed professionals,
and people in marketing and sales. http://www.getclientsnow.com
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