Tag Archives: Finance Tools

The Top 10 Ways to Keep Your Business Financially Healthy

Recently, I gave a presentation on my “Top 10 Ways to Keep Your Business Financially Healthy” and thought I’d turn it into a blog post to share with all of you.

The Top 10 Ways to Keep Your Business Financially Healthy

  1. No co-mingling.
    No, this is not an HR issue! This refers to co-mingling personal and business funds. Not only does this make your accountant’s job a nightmare, it opens your personal accounts to inspection if you should have legal or tax issues with your business. The reason many of us have incorporated or started an LLC is precisely to obtain this protection of our personal assets (that corporate veil). But, co-mingling your funds pierces that corporate veil and negates any protection you might have. Don’t do it!
  2. Get a system.
    Having some sort of accounting system is key. You can’t do it all on spreadsheets or in a shoebox. Again – your accountant will hate you, but more importantly it provides you no visibility into your business. There are inexpensive, very easy-to-use systems out there, so there’s no reason not to do this.
  3. Have a checklist.
    Don’t miss a filing date or regularly scheduled task. There are too many things to do on a regular basis to skip this. If you’d like to get our regular advice on the matter, sign up for our newsletter and we’ll be happy to send it to you.
  4. Look ahead.
    Accounting systems can tell you what happened last month, last quarter and last year. While you can make assumptions from that, it’s not nearly as powerful as having leading indicators, a budget and a forecast to steer you right. Read more about why and how here.
  5. Know your margins.
    Make sure you know what it’s costing you to deliver your products and/or services. Include things like credit card charges and shipping. If it’s services, make sure you include all the additional costs beyond your employee’s salaries, such as payroll, taxes and benefits. These costs can be 20-25% or more of payroll. Delivering more services that you’re losing money on is going to put you out of business faster.
  6. Know who your best customers are.
    Most of us have customers that we make the most money from, who appreciate our value the most, and who we enjoy working with the most. If those customers meet all three criteria, that’s fantastic! Knowing what kinds of customers are best for us allows us to look for them and run screaming from those who are not, saving everyone a lot of headaches.
  7. Invoice promptly.
    The easiest way to keep your cash flowing is to invoice promptly and frequently. If you’re working on a long term project, invoice at multiple times during the project (if at all possible). To further assist the project, try coinciding your billing with specific deliverables. As an extra tip, follow up with customers immediately after their due dates if they are late with payment. Simply reach out with a nice phone call to remain “top of mind” when they do pay.
  8. Know your reporting responsibilities.
    We all have annual, quarterly, (and sometime even) monthly reporting responsibilities to the IRS. Additionally, local taxing authorities, states (registration), banks, investors and ourselves may all require additional reporting; make sure you know who needs what. If at all possible, prepare once and deliver to many to save yourself some time and effort. Don’t forget reporting (reviewing) financial reports yourself.
  9. Have a source of backup funds.
    One very common time for a company to experience a cash crunch is when they are growing. You might need funds to purchase raw materials, inventory, or pay people to perform services before you are paid. The time to line up this source of funds is BEFORE you need it. It can take time to get a Line of Credit or Loan approved, and banks are much more likely to lend when you are not desperate. Don’t wait until you are.
  10. Engage an expert.
  11. You’re an expert in your business, but may not be an expert in finance, accounting, or taxes. That’s why it pays to engage an expert and have reviews with them periodically (quarterly is a good frequency). Once you have a relationship with them, you can also call them and ask questions during the year to keep yourself on track.

I hope these suggestions were helpful. Any others suggestions on how to be financially healthy? Leave them in the comments field below.

Forecasting Growth

Is your company growing? Would you like it to grow?  We tend to think of growth as a universally good thing, and while it is a good thing, it comes with its share of challenges.

Did you know that almost every growing company will run into cash flow shortages? Or even worse, limited cash flow; something that will greatly stunt your growth. Think about it – if you sell widgets and the demand for your widgets is growing, you need to buy the widgets or the materials to make your widgets to satisfy market demand. Sure, you can finance that purchase – to a point. I don’t know anyone that has unlimited credit, and eventually you’ll run up against that limit.

Say you’re a service company. You think you’re in the clear because you don’t have to purchase or make inventory? Think again. You need to hire more people to perform more services. This can actually cause a bigger cash flow shortage because it can cost more, and payment may be delayed even further.

The best way to avoid stunting your growth is to figure out how much cash you’re (likely) going to need and make arrangements in advance. Whether it’s a line of credit, terms with suppliers, or pre-payments and deposits on certain orders, there are ways to mitigate the cash crunches associated with growth so you can grow to be as big as you’d like.

Forecasting Growth

 

 

Why Financial Forecasting is Not Just a Financial Activity

Financial Forecasting

We tend to think of anything having to do with numbers as a financial activity, and that alone makes some of us shy away from it. However, financial forecasting and budgeting are so much more than just a financial activity.

First of all, financial forecasting is an operational activity. You want to make sure you have the resources – whether it is people, inventory, or cash – to operate your business. You also want to make sure your business runs as smoothly as possible. To enable maximum efficiency, avoid the kind of “fire drills” that come from a cash flow crisis whenever possible. Regular forecasting will minimize these fire drills and let you focus on your business.

Second (and most importantly), financial forecasting and budgeting are strategic activities and should be a part of any strategic planning activity. Developing a strategic plan without putting the resources (funds) in place to achieve it is a hollow exercise.

Don’t let those pesky numbers intimidate you, and don’t just lump them into that icky finance bucket. Make financial planning a part of your operational and strategic work.

Habits of Financial Health

Here at GrowthCast, we have users that find our service valuable for making big-yet-infrequent financial decisions such as moving, hiring or making a big investment. However, we also have businesses that monitor their financial position regularly. Guess which ones are healthier?

Financial Health

Using any sort of forecasting tool exclusively for the big (and infrequent) decisions is like crash dieting and exercising before a big reunion and eating cheeseburgers on the couch the very next day. While it might give you some short term results, it doesn’t make you any healthier. On the other hand, keeping an eye on your cash flow and knowing where you’re heading with revenue is the equivalent of eating healthy and working out regularly. This is what pays the long term dividends, keeping you healthy and active long into your life. It’s no different with your business.

So, are you the crash dieter or the consistently healthy person?

It’s your choice.

 

Are you checking your financial statements?

How-to-Make-Sense-of-Your-Financial-StatementsStandard financial statements are much like a rear-view mirror. They are essential to look into to properly see what’s behind you.

They tell you what happened last month, last quarter, last year. While it’s all good information, it’s not nearly enough. You want to know what’s going to happen (or at least what’s likely to happen) in the future. With this in mind, you can make better decisions – both financial and strategic.

If you’re only looking at your standard financial statements (income statement, balance sheet, statement of cash flows, etc.), you’re not alone. Most business owners focus exclusively on these reports. While you can get some future insight from the aforementioned standard financial reports, there are ways that are vastly more effective.

Financial forecasting can take into account both future events and changes that might not be obvious from your standard financial statements. Examples of this include new business, projects that are ending, changes in expenses due to increases, one time or infrequent expenses, or the costs associated with growth.

Unfortunately, forecasting is not as easy as pressing the “print button” and viewing reports in your accounting system. It takes work, knowledge or a tool like GrowthCast to help. However, if you do take the time (or use a tool), you likely won’t go back. You’ll have a much more detailed and accurate picture of your future than you’d get by just extrapolating the results in your that “rear-view mirror” known as your financial statements. Try it; we’d love to hear about your experience.