Stage 4: RUNNING MY BUSINESS
It does not matter how slowly you go as long as you do not stop. Confucius
Managing a small business is a never-ending battle. Financial management is important to all businesses. By identifying and developing financial management practices, rules and tools when starting a business, you will be able to build a smooth process while your business grows.
By managing your finances, you can monitor your revenue and expenses, see if you are making profit and make sound business decisions (i.e. what you can afford in terms of your business (employees, marketing budget, office space, inventory), which products, services and markets are profitable) Financial management gives you the tools to plan for overall business growth and helps you find your way through challenging times.
Creating a budget is the first thing to start with your financial management. A budget is a list of all your expenses (monthly, yearly) by categories. Examples of categories (rent, utilities, internet, insurance, employees, inventory, licenses, taxes, legal and accounting).
Bookkeeping is the organized process of tracking income and expenses. Bookkeeping steps: Obtain business accounting software, different business and personal checking account, follow your checking account, use a tracking sales system, deposit all sales, write business checks for all business expenses, use a different business credit card, pay business expenses first, run a profit and loss statement (P&L)
Cash flow is the balance between the cash received and the cash paid out. Cash flow projection is a financial statement that tries to show how cash is expected to flow in and out of a business. Cash flow projections can show you if projected cash receipts will be sufficient to cover projected cash disbursements.
How to increase cash flow:
- Sell more!
- Increase your prices
- Reduce expenses
- Save money
- Obtain other sources of cash
- Research vendor options to buy inventory at lower prices
- Establish policies to get paid sooner from clients
Create a table with sources of cash / operating uses of cash and carefully track them each month.
- Profit and Loss (P&L) statement
- Sales (also called Income or Revenue): Total amount from selling your product or service during a certain time period.
- Cost of Goods Sold: Total expenditure for inventory items which customers buy. Cost of Goods Sold consists of the cost of purchasing the items, freight, manufacturing costs, modification costs, and packaging. For services, this is the cost of providing the services, including labor (i.e. employees salaries), material used, and transportation.
- Gross Profit: Sales minus cost of Goods Sold.
- Overhead: Expenses associated with your ongoing business operation, such as rent or utilities.
- Net Profit: Gross Profit minus Overhead. Net Profit is what remains to pay for expansion, equipment, loan repayment, income taxes and owner’s draw.
Team management: Starting a business on your own is a tough venture. You have to think, decide and implement all different aspects of your business. Due to this it is very difficult a single person to have all skills needed to run and expand the business smoothly. For example, you may be an expert in communication and networking, but not in financials or web development, so building a team is essential as the business grows. In addition to this, the business benefits as the overall actions are viewed by different perspectives.
The skills set required to run a business successfully include:
- Sales & marketing
- Procurement & buying
Dealing with Customers: Mapping the customer path is essential for building awareness and earning customer’s loyalty.