Category: Finance

As we approach the end of the year, it is a perfect time to think about strategic planning session to develop meaningful metrics and monitoring systems.  We offer a free year end strategy session, you can find out the details at https://successscorecard.com/financial/.

During a financial review, we dig into the numbers behind your business.  No cookie cutters, just good old-fashioned elbow grease.  Sessions can be a broad overview for a fresh viewpoint, or very detailed to answer specific questions.  We use our experience to help you develop the business processes and metrics to ensure your success.

I know first-hand the importance of developing key performance metrics and the impact it can have on the bottom line.  We love taking our experience and helping entrepreneurs build lasting and sustainable businesses that reach their goals.  We have found that many businesses start with a dream and a fantastic product, but next to no business skills.  It is our mission is to give entrepreneurs the skills and information necessary to thrive.

Budgeting is the one thing that most owners hate.  Many owners hate it so much, they never do it.  “I’ll wait till my taxes are done to see how much money I made.”  “Sales are going up, must be doing something right.”  “Money in the bank, it’s all good.”

If things are going along well, why bother?  Why bother going through the mental gymnastics of planning your finances with a budget?  For me, that’s the perfect time to plan your finances.  Because we have all been in the position of working harder and longer and questioning is it worth it.  And often we forget that dollars in the bank is not the only measure of success.

Building a solid budget allows us anticipate issues before they happen and think about ways to avoid them.  It helps us answer the question “Is it worth it?”.  A budget is a tool to help you focus on your priorities and avoid distraction.  It provides a focus for your business.

One of the reasons managers don’t create a budget is because it is hard to look into the future, let alone pull all of the numbers together.  Here is a thought process to help you develop a strong budget.

Start with your historical profit and loss statements, hopefully at least 3 years.  Break your cost down to a cost per unit value.  For a detailed post on how to calculate your per unit cost of production, click here: https://successscorecard.com/2018/02/28/managing-by-the-numbers-per-unit-cost-of-production/.  Average the cost per unit for the time period you have and look at the trends per year and what your plans for the next year on before deciding on a good value to use.

The next step is to break the accounts into fixed and variable costs and recreate a yearly budget based upon how much you think you can sell the next year, multiplying the variable costs per unit by your projections and keeping the fixed costs level.  With a bit of Excel magic, you can tie all of the variable costs back to one cell that you can change and quickly see what happens to your bottom line when you change your sales projections.  I always like to do a good, bad, and ugly scenario because as optimistic humans, we tend to think sales will always go up, a bad assumption all too often.

This process is particularly useful when your business is changing.  It gives us a projection tool that helps us answer the question “Is it worth it?”  as you take on more responsibilities and work.  Take your time, run the numbers and make a good decision based upon numbers.

So you have finally come to grips with the fact that you are in over your head financially. What is your first step? STOP DIGGING. Stop. Spending. Money. Now.

Then start answering these questions.

First of all, where do you stand financially? Who do you owe money to, who owes you money. What assets do you have, what liabilities do you have? What contracts do you have with clients?

The next question is where did you spend the money – cash, credit, barter, checks, debit cards – all of it. Don’t hide anything, you are only lying to yourself. It is important to know how you got to your current situation.

Third, find out where can you make the most money the fastest. If you don’t know your margins, you don’t know where to focus your efforts. Focus on high margin products until you are stabilized. Look at both the income and expense side of the equation, sometimes it is easier to increase income than cut costs.  Keep in mind that 10 hours of work at $40 per hour is much better than 40 hours of work at $10 per hour.  You may not have the $40 per hour work available when you need cash, but work towards that type of work.  You will be much better off in the long run.

Third, develop a realistic budget. A budget not only shows cash inflows and outflows, but what your priorities are. By making a conscious decision on what to fund and what to ignore, you have set your priorities. Any time you deviate from your budget, you should question if the purchase fits your priorities. If your priority is to stop bleeding cash, then you should probably cancel the spring break trip to Florida.

Financial turn arounds happen every day. But it takes a concerted effort to change the habits that got you there in the first place. Make a commitment, enlist help, and develop a plan to make it happen. It is your choice!