Here we are, at the end of 2013. So level with me: Are you staring at your balance sheet with that "Huh?" tilt to your head?
You know you busted your you-know-what this year. In fact, you busted it in ways you’ve never busted it before. Yet here you are, looking at your balance sheet thinking, “Where’s all my money?”
I understand ... believe me, I know all too well what that feels like:
- It stings worse than the guy or girl who never called you back after a great date, and ...
- It’s more confusing than trying to have a civil discussion about politics on Facebook.
But here’s the good news: It’s fixable! The reason you didn't make any money in 2013 is because you don’t know where your money's going. Having been there myself, I can help you turn things around and get you started off on the right financial foot for 2014.
Step 1: Get Honest
The truth is, the mafia knows more about where its cash goes than you do. The first step to making money is keeping tabs on it.
Pull out all your bank and credit card statements from the past three months. Now, either hand them to an assistant you trust or carve out an hour in your day and track where every dime has gone. You’re going to uncover everything from recurring charges you’d completely forgotten about to must-have monthly essentials like (gulp) payroll and taxes.
Getting financially smart all begins with being honest and getting all mafia-like on your business cash. Know where it goes—all of it. (Once you’ve done that, treat yourself to a kitschy “The Buck Stops Here” sign, so you never forget.)
Step 2: Get Lean
You never see competitive athletes carrying around a bunch of extra weight, and neither should you—figuratively speaking, of course. The point is, in business, you have to be nimble. You have to have the confidence to be able to respond immediately when your business demands an expenditure. You can’t do that unless you’re running a lean financial ship without a bunch of costly cargo weighing it down.
Now that you’ve tracked all of your finances, it’s time to decide what can go. What do you no longer need to be spending your money on? These ideas can help you lean-up and get financially nimble fast:
Employees. How many assistants do you have? Who’s doing what in your business? Is there any way to streamline who’s handling what without compromising quality?
Memberships. These can sneak up on us. Which ones do you need, and which are for show? Start canceling the ones that aren't doing you any good. If you haven’t read or listened to at least 60 percent of the content in a membership site for the past three months, that’s a pretty good argument for slashing the expense from your budget.
Fees. Are you getting pinged by overdraft fees, credit card handling fees or ongoing fees for services you rarely use and forgot you’d signed up for? It could be time to shop for better credit card rates or a better merchant services account, and ditch those rarely-used but loves-to-bill-you-monthly services. Paypal and Square have some of the highest merchant fees around. I’ve switched over to Bill.com which handles everything and at ridiculously low merchant rates (less than 2 percent per transaction and only $0.49 per eCheck).
Step 3: Stay Plugged In
You need to be running profit and loss (P&L) statements for your business on a regular basis. I look at mine quarterly and always ask, “Where can I lean up and cut expenses?” It’s fine to get your finances squared away once, but if you don’t continue to participate in the financial side of your business, you’re never going to make any money—not in 2014 or any year.
What should you look at when going over your P&L statements?
1. Is what’s making you money really making you money? Look at the products and services you offer that bring in each piece of your company’s revenue. Now, consider the true cost—hours, production, staff, overhead—of those products and services. See if they’re truly profitable or just bringing in revenue.
2. Do you trust your numbers? It’s imperative to have data you can trust. Bad bookkeeping only creates bad data from which you make bad financial decisions. Get your books cleaned up, and implement solid bookkeeping practices. It’s OK to handle your books yourself, but don't be scared (or too proud) to ask for a bit of help to make sure you're making the best bookkeeping and financial decisions.
3. Set goals for cash reserves. Ohhhhh, I have cash. Let’s spend it! This one's a familiar mantra from my less-than-responsible financial days as a business owner. Since setting goals for cash reserves, there are three things I no longer worry about: emergencies, payroll and taxes. Those are three really nice things to have scratched off my list of business worries.
Start by socking away a comfortable amount each month into a business savings account. See if you can get three months worth of payroll, taxes and expenses squirreled away. From there, cash reserves are the sky’s the limit. Growing a business is a lot easier when you have the cash you need to invest in something ready and waiting for you.
Do you have any money management tips that have worked for you? Share with us in the comments below.
Read more articles on managing small-business finances.