While running a small service-based business is not easy, challenging economic conditions actually helps us do what we should be doing anyway – streamline business finances and manage for profitability. If you’re feeling a pinch because you’re not turning the profit you’d hoped for so far this year, use it as a catalyst to make your business more lean and powerful. It’s time to trim the fat and maximize all your resources and opportunities.
So let’s explore three areas of your business that may need a tune-up to get your bottom line and cash flow moving in the right direction.
1. Accurate Recordkeeping
Yes, I know. Recordkeeping is not sexy or exciting. But it is vital to maximizing your business’ potential for sustainable profits. Let’s face it. If you’re not turning a profit consistently, you won’t have a business for long.
Whether your business goals are lofty or humble, priority #1 must be to make money. Period.
To make money, you must be able to see where you are right now, truthfully, whether that means you’re business is profitable or not. You need an accurate picture of your situation. Up-to-date bookkeeping records give you the ability to realistically and deliberately move forward to navigate this economic road ahead to reach your goals successfully and on solid ground.
Accurate financial records help you answer questions like…
- Are you profitable each month?
- How is your business doing compared to last year at this time?
- What’s changed?
- Which expenses are directly tied to sales, and which are draining the business?
- What’s selling most right now…and what’s not?
- How does the value of the business compare to what is owed? Is that improving or declining?
- Are new customers regularly coming in? How much are they buying?
- How much are your existing customers still buying?
Answers to these types of questions are revealed most quickly in the numbers provided in your bookkeeping records. You’ll quickly identify weaknesses and dangers emerging, as well as developing opportunities that can make or break you financially. You’ll be able to harness them to your advantage, instead of being blind-sided by them.
But the only way to see through your business binoculars is put a solid bookkeeping system in place.
How do you do it? You probably already know.
Use financial software and learn how to use it effectively. QuickBooks is the software I recommend and use most because it’s a powerful program that will give you the insight you need. But even a simplified online program like FreshBooks will do the job and is easy to use. It’s especially recommended for professional, service-based businesses.
2. Create Cash-Sustaining Systems
As with our physical bodies, fear and pain can serve as powerful motivators to get us into action. But they can also become recurring energy-draining aches that only subside momentarily if you react with temporary, short-term “pain killers” to get past the immediate discomfort.
You wouldn’t just take aspirin to treat a toothache and think it will fix the problem. So don’t do the same with your business!
For example, if you often feel the pain of not enough cash flow, you must identify and eliminate the problem at its source to grow a strong and healthy operation. Otherwise, the problem, and the pain, are only going to get worse and more serious. Cash-sustaining systems will cure those pain-causing areas in your business, and prevent them from recurring.
So what’s the cure for always being short of cash? A shift from short-sighted, roller coaster cash management habits, to long-term business growth systems that provide cash flow stability and health.
For example, you can use your financial reports to see where you can maximize what’s working in your business to pull in more sales. You should also remove what’s dragging your cash down, that is, cutting unnecessary expenses.
Once you’ve laid out an action plan, put it to work immediately by scheduling it on your calendar and stick to it. Keep track of your results. Documenting what you’re doing and measure your progress. Be determined to do what it takes to turn your business into a consistently productive and profitable machine.
3. Reduce your tax burden
There’s no getting around it. Taxes are a significant obligation we all must bear. It has been conservatively estimated that small business owners and self-employed taxpayers are unnecessarily overpaying by more than 160 BILLION dollars each year. Wow!
Can you really afford to be paying more in taxes than you need to right now? Consider this eye-opening bit of information I stumbled upon the other day…
In a recent report conducted for the Small Business Administration, they determined that tax debt for small businesses is a significant factor in bankruptcy.
“…more than half of individual small business owners [in bankruptcy] reported owing some tax debts. Individual small business owners in bankruptcy proceedings who are encumbered with high tax debts are generally in a precarious financial condition and are worse off financially.”
Why are so many small business owners in such a precarious financial condition?
At least one big reason is they only pay attention to their taxes as a “once-a-year” annoyance, usually sometime around April 15th. Sound familiar?
If you’re only paying attention to your taxes during tax season, you’re probably paying too much tax because you make it impossible to take advantage of tax savings strategies before the end of the year.
So what can you do? Do tax planning BEFORE the end of the year (that means NOW), while you can still take action on tax breaks that may be available to you. Yes, this means you need to either do some research, or at least making an appointment with your tax professional. But this is some of the smartest time and money you can invest for your business’ longevity and health.
A significant tax-reduction strategies to consider seriously is your choice of business entity, also known as your legal structure. That is, whether your business is a sole proprietorship, partnership, corporation or LLC. Your business structure can have a HUGE impact on the way your income is taxed.
Okay, so I’ve thrown a lot of information at you here. And quite honestly, you probably can’t put it all to work for your business in one day. So pick just one of the three keys above and run with it this week.
The point is to take action now to streamline your business, and consistently make it a focus from this point forward. You’ll emerge a stronger entrepreneur well on your way to manifesting your vision for your business and your life as a result – guaranteed.
How will you streamline your business going forward?