3 Things to consider when starting your business.
Starting a new business is exciting and overwhelming at the same time. There are so many things to think about and so many decisions that need to be made that at times you might be thinking if you've lost your mind, or maybe that’s just me.
Usually, things like chart of account set up or reporting or KPI measurement is the last thing on any new entrepreneurs list. However, there are some fundamental things each new business needs to think about as they embark on this new life. Setting yourself and your business up correctly from the beginning not only saves you time and stress down the road but can contribute to saving you thousands if not hundreds of thousands by providing ease of access to data and most importantly, clarity.
To me, running a business without accurate data and clarity, is like driving your car down a highway at 100km’s per hour blind.
Running your business without basic reporting is like driving blind.
Learn the basics of financial reporting
This isn’t usually one of the main critical points listed as a vital knowledge point. There are many reasons why taking a few hours to learn and understand the basics of financial reporting could be the difference between having a business and running a successful Profitable Business.
3 main reasons why this is one of the first things you should understand.
a) Let’s you see the financial impact of your decisions, ie what did the last big decision do to your sales, or how did your expenses track, did it make you more or less profitable, did it bring in better quality customers, or if the desired effect was to remove all unprofitable, high maintenance customers, did you achieve it?
b) Where your business is relatively the same year on year, allows you to track how your revenue and sales are trending? If you haven’t made any fundamental changes, but your expenses are higher than last year, you need to ;
Understand what drove this increase
Can you negotiate with your existing suppliers for a reduction,
Shop around, and get a better deal,
If you buy more of the common items you use, can you save more?
c) Regular review of your results allows you to correct any issues before they become too serious. Looking at the trends and how you’re performing against the same time last year, last month, budget, or forecast allows you to track how you are performing vs how you think you are.
Cashflow management.
So many new businesses start off without a second thought to how they will manage cashflow. This will make or break your business, so get it right from the beginning.
Cashflow is not just about watching your bank account and being strict on what you spend. Sometimes, you must spend money to make money, but you need to do this in the right way. Ways you need control this are;
Negotiate the best possible terms with your suppliers, and pay to terms, do not pay early.
Try and collect payments from customers as close to the sale as possible. In an ideal world you will get paid before you have to pay for, your stock, this isn’t always a reality, especially for new or small businesses.
If you’re running a business with Stock levels, manage these tightly, any excess stock sitting on your shelves is cash you’ve parked there. This stock is costing you money, because you must pay for a location to hold it. The skill here is to make sure you have enough stock to continually supply your customers, without having so much stock you find yourself having to offer reduced pricing to get rid of it.
Pay yourself.
When you’re new in business you can’t always afford to pay yourself, however you need to put a plan in place where you start paying yourself. Afterall, the reason you started a business was so that you could support yourself doing what you enjoy and on your terms.
One way you can make sure that you pay yourself is factor this cost into the pricing, this needs to include state and federal taxes and retirement planning. Then when you make a sale, this is the amount you set aside for your wage. You must start factoring in retirement planning from the beginning as well.
Selling the business to someone else once you’re done with it is a nice retirement plan, however this doesn’t always play out the way people expect, so keep that as a backup while you ensure you contribute towards your retirement in more official ways such as superannuation accounts.
Developing this habit from the beginning, even if you only pay yourself very small amounts, sets you up for when your business is performing better and you simply continue to pay yourself as you have been, but you now start to see the benefits of your labour.
These are three points which will significantly help you towards establishing a profitable business, but they are not the whole list. When you are the worker, the manager and the owner of a business, you must wear many hats, having correct process and procedures from the beginning to make some of the admin easier will free you up to work on the business instead of in the business.
If you would like to get more support on the above or anything else, please get in touch.
0490 787 756
support@businessbasicssupport.com.au
