How to Make Your Business Financially Fit

Steve is a successful business owner who takes his business very seriously. He focuses on growing his business and has several employees. People love his products and services and are sharing them with others. What Steve is struggling with is making his business financially fit. It seems like his business is always tight, and he is barely making it each month. Sound familiar?

This is what we hear from many business owners. They want to grow and be successful, but they are missing some tools to assist them in staying profitable. Here are four tools you can implement into your business to be financially fit.

1. Know Your Overhead Cost – It is easy to know what the cost is of each product or service you sell, but many business owners fail to include their overhead cost when figuring their numbers.

Profitable businesses know what their profit is on each product or service after their overhead cost is included. Overhead costs often include, administrative expenses like office supplies. Other expenses may also include marketing and advertising, employee related, facilities and equipment, vehicle related expenses, insurance, and tax related expenses.

Companies should know the percentage of breakdown related to each product sold, each procedure or job performed, or each service that is provided.

This allows the business owner to price their products and services at the right price. If the overhead cost is not included, it can cause the business to lose money on each sale that they are making.

2. Manage Your Cash Flow Regularly – Cash flow is so important for a financially fit business. If a company does not have a good eye on their cash flow, it can cause them to struggle every month.

Knowing what money you have coming in, and what money you have going out each week and each month will help you to know what you need to bring in each week to manage the bills that are going out.

It will also assist you with meeting goals like buying that piece of equipment that will make you more profitable or investing the money to increase overall profitability. Look at a statement of cash flows; a statement of cash flows will show you what money is coming in and what money is going out each month.

3. Pay Attention to Your Numbers Each Month -Waiting until the end of the year to get your bookkeeping in place for your tax accountant can be a very costly mistake. A financially fit business pays very close attention to how the business is doing on a weekly and monthly basis.

They know how much they need to make each week in order to be a profitable business. They also look at their financials each month to see what they need to do in order to improve the next month overall performance.

If a company fails to do this, they have no way of making important business decisions because they don’t know where they are at. Not know where your business is at will cause your business to fail. If a business isn’t growing, they are dying.

4. Know Your Financial Ratios – Many business owners don’t know what business ratios they need to track in order to be profitable. Knowing the right ratios can help a business owner know what decisions they need to make to move their business in the right direction.

As an example, one of the ratios that a business needs to track is the current ratio. This ratio will help them track how healthy their business is. A healthy business will have at least a 2 to 1 ratio, so $2 in assets for every $1 in liabilities. If the business is carrying inventory, it is important to have a 4 to 1 ratio.

To determine the current ratio, take the current assets and divide them by current liabilities (Current Assets/Current Liabilities.) Once you have the current ratio, it can be tracked each month to determine if your company is moving in a good direction or if you need to make some changes in your business to move it in the right direction.

3 Indispensable Things to Know When Starting a Business

I’ve been speaking to people, and I don’t know if it’s because we’re in the first quarter of a new year or if there’s more confidence in the economy, but I’ve realized that many more people are looking to start their own businesses. As a business owner and social entrepreneur, I think that’s a great thing.

I’m often asked about my thoughts about starting a new venture, and candidly, I love the adrenaline rush, vision driving and strategy development of a new business opportunity. If you’ve been thinking about beginning a new company, there’s no time like the present to start to get yourself into the entrepreneurial mindset to consider if it makes sense for you.

If I were speaking to someone right now starting off as a new business owner for the first time, there are three essential things I would suggest they keep in mind:

Do You Really Want to Be an Entrepreneur?

The first question is the toughest, but you’ve got to sit with it for a while. I’ve spoken to many people along the way who have started a business, and then have fallen flat on their face and returned to the safe embrace of a 9 to 5 job. Being a business owner is not as “glamorous” as it may appear.

Sure, you’ll have a flexible schedule (on occasion) and are the final decision maker on large and small decisions, but being an entrepreneur is not for everyone. The truth is you will never work as hard as you do than when you’re a business owner, particularly in the early years. Twelve hour plus days, including weekends, is not uncommon.

Being a business owner means it’s all on you. You may have other people working with you. You may be one of those leaders who allows his team of professionals to be the professionals they are, but as an entrepreneur, your responsibility is to understand every area of your business: sales, marketing, legal, finance and accounting, administrative, marketing, research and development, product development, etc. It takes a great deal of time to know all areas of your business and make sure they are working correctly. It’s an endless process.

Do You Really Want to go into Business with Your Friends and Family?

Many times, particularly with small businesses, you’ll have friends or family members decide to go into business together. It makes sense to want to go into business with people you know and trust, but do you want to do that? If there is anything that comes up your relationships can be affected.

A great scenario is this one: you’re working 12 hour days and doing great in your areas of responsibility. Your business partner, and good buddy, perhaps is not as hard working and as disciplined as you are and so resentment begins to build. That’s a recipe for conflict and the likelihood that your business will survive with internal friction exponentially decreases with the increase in tension.

Another possibility is that you don’t go into business with any friend or family as your partner, but perhaps you decide to hire that same good buddy to be one of your first employees because you trust him. Again, what happens if he’s not putting in the hours or work that you think is essential for business success? There have been countless examples of business owners who partnered or hired friends or family only to be in a situation where the business has suffered (as well as the relationship) because of anything from work styles to fraud. It’s very tough to separate your business from your relationships without potentially ruining them.

Decide if You’re the Cupcake Baker or the Business Owner

Many people have a passion for something in their lives, and that’s great. Perhaps they love making cupcakes, or they love music and want to sell instruments. Whatever is your passion or interest, if you have one, you will not be only doing that work. As the business owner, the most crucial part of your business is a vision, sales, etc. and the path the company as laid out in your business plan.

If you love painting and you decide to open up a paint shop, you will not be spending your day painting. You will spend your day selling paint, dealing with customers and managing the books. Same goes for cupcakes or even widgets. The business owner that wants to grow his or her company is not going to be baking cupcakes exclusively but also running the business.