The Costs of Being the Boss
Whatever your industry—real estate, retail, manufacturing, technology—it’s a fair bet that you hope your business will grow in value, ultimately providing you with an ongoing source of revenue. That’s why planning for financial success is a critical skill for all entrepreneurs.
Unfortunately, some business owners are less than comfortable “with the numbers” and with financial planning in general. Truly, it is the elephant in the room for many—even those who have been running their businesses for some time.
As an entrepreneur, it is critical that you understand the basics of accounting and finance. You can and should get advice from others such as a CPA, but in the end, the decisions are yours to make.
As the leader of your business, this puts you firmly in the driver’s seat, allowing you the opportunity to grow your business. Consider the following strategies the financial “rules of the road.”
BECOME NUMBER SAVVY Understanding key financial concepts and financial statements affects your ability to successfully run a business. If you feel unsure of your capabilities, take a class, read a book or conduct research on the Internet. There are numerous free resources available to you. Take advantage of them. Consider it an investment in building and growing your business.
SET CLEAR FINANCIAL GOALS Your business must generate profits in order to meet your overall financial goals. Running a business that merely pays you a salary is not a sound business practice. Your business must be profitable enough to cover its own expenses, pay you a salary and allow you to reinvest in the business.
CLOSELY MONITOR YOUR BUSINESS FOR WAYS TO INCREASE PROFITABILITY You might have heard the phrase “If you’re not moving forward, you’re moving backward.” That definitely applies to small businesses. To keep up with growing costs, you must find ways to stay (or become even more) profitable. That might mean increasing your customer base, selling more product, adjusting your pricing structure or finding ways to control expenses.
REMEMBER THAT CASH IS KING Without cash, it is impossible to cover the expenses incurred when running a business. Many businesses close within a few years of opening, and poor cash management is often the culprit. Sometimes this takes the form of
not having enough cash on hand, poor inventory management, overinvestment in fixed assets, poor credit arrangements or a general lack of planning.
DEVELOP A BUDGET Having a budget can help you evaluate your operational efficiency, monitor the financial health of your business and build a company that will help you reach your financial goals. Every decision you make throughout the business development process—every change, every goal—affects your financial outcomes. Budgeting is a reflection of the goals and strategies you
have for your business.
PREPARE FOR THE WORST, PLAN FOR THE BEST Too often, business owners neglect to build disaster preparedness into their financial plans. When the Twin Towers were struck, many of the businesses on Wall Street closed for months, thus generating no revenue. However, the bills kept coming, and the rent still needed to be paid. Unfortunately, many small businesses aren’t prepared to weather the storm, be it natural disasters or any other thing that causes them to close their doors for an extended period of time.
Being prepared for tight financial times is also important for new entrepreneurs. When a company is just starting out, the owners might go a few years before they can afford to draw a paycheck.
As you move through your entrepreneurial journey, use your financial savvy to make daily financial decisions that affect the future direction of your business. Your ability to evaluate financial concepts and make decisions will be a key factor in navigating your business to your own definition of success.