How Desperate Are You To Stay In Business? 7 Financial Steps For Success
8 out of 10 businesses fail.
90% of businesses fail.
1 in 3 businesses never make it past year 3.
The numbers may differ depending on what you read or listen to, but over and over we are bombarded with the same message of doom and gloom.
If the experts are to be believed, it begs the question why anyone would even consider working for themselves. However in my opinion the better question would be:
What are the ones who survive or become successful doing that the others are not?
What they all have in common is an understanding of how controlling the money is vital to their success. Whether they do it themselves or hire someone to manage it, it has to be done.
I get that the financial aspect is the least sexy of the business areas you have to deal with. Sales & marketing yields customers. You get to be creative, social and innovative.
The operations side allows you to show the people who have bought from you, just how good you are at delivering on your sales promises. This is the doing part.
And then last but most definitely not least, you have the financial controls. This is the exact antithesis of the sales and marketing. This is about attention to detail, analysis, and number crunching. These are commonly the very skills that so many entrepreneurs shy away from.
But here is the kicker. The best way to know how well your sales and marketing and your operations skills are performing, is to analyse the money.
The money doesn’t lie. In fact it shines a light so fierce, this alone can be a reason entrepreneurs shy away from the money management. They would rather not face the reality of a situation. They concentrate on sales and servicing and hope the money will sort itself out.
This last belief does hold water, but it is essential to know on an ongoing basis whether you are on track or you are about to be horribly derailed.
This fitness checklist is a quick reference for checking your financial health as you go.
Financial planning (why, what, how)
Why you are doing it? To buy nice things, help the needy, make your family proud. Only a few people actually work purely for the sake of it. What do you need to make it happen and how will you go about it?
Inflows versus outflow
To be financially fit, you need to bring more money in and spend less and you will be left with surplus to pay yourself more and have enough left over to invest in growing your business.
Successful entrepreneurs always have a financial team of some sort. It could be just you and your accountant. At the other end of the scale you could have a bookkeeper; accountant, financial advisor, business coach, solicitor, and of course, you.
Number crunch every month
This is imperative. If this is not done, the decisions you make will be little more than guesswork. Despite this over well over 60% of business owners rely on gut instinct or their bank balance to determine how well they are doing. And guess how many go bust in the first 3 years? Well over 60%. Coincidence?
Once you start to understand & use your reports each month you will become addicted to the information they give you because they will set the basis for your future decisions. Not to mention alert you to any problems. Work on amber alerts not red ones.
Shape up and strengthen
This is the part of the process that will either make or break your business. It is no good having the information at your fingertips and not making the right decisions.
When you sit with your accountant, financial adviser, marketing person, business coach, or similar professional; you would be able to concentrate on strategy and problem solving. Rather than waste time gathering information to create reports that you never do anything with.
Saving versus spending
As employees we were conditioned to pay all our bills first and only then save with what is left. The trouble is, after money has been directed at covering expenses there is often not enough for anything else. Including taxes or paying yourself. There are many techniques to combat this cycle, but a simplest one is:
Aim to spend only 70% or less of money collected each month. If this means you battle to keep on top of expenditure, then what better incentive do you need to get your revenue and profit levels up?
Remember 1 in 3 businesses do not make it to their third anniversary due to a lack of cash.
So don’t be a statistic.