Do You Know How To Find Money In Your Business?
Quick off the top of your head…
- What is the most important number in your business?
- How many clients do you need today to make a profit?
- How many sales do you need to break even?
- What is your profit margin?
Struggling to answer these basic questions?
If you have a blank look on your face, let me tell you that you are not alone. Many business owners have no clue how they specifically are making money in their business or what they need to do to generate consistent cash flow.
Even seasoned solo business owners have frequent problems with cash flow. Some months it’s up, and other months it’s down. While this may be a side effect of not having solid marketing systems in place, it also is related to spontaneous decisions based on emotion rather than choices anchored in a sound understanding of money matters.
However, you can remedy this tendency and increase your profits by familiarizing yourself with the key numbers that lead to generating consistent cash flow. Many solo business owners relegate their balance sheet to their accountant or bookkeeper. They hand over the finances and then wash their hands of them. While delegation of tasks is commendable, to entrust this job whole hog is problematic. As a matter of fact, I think it has the potential to be a costly mistake.
As the leader, you need to understand the language of money – become intimately familiar with the nuances of your financial statements and the nitty-gritty of making money.
This is huge – if you want to cultivate the competitive edge over others in your business niche. By nurturing your inner Oprah, you’ll start to get a feel for which service or product the public will love, which ones will be the most profitable, and which ones to hatchet. You’ll have a sixth sense about how to tie a marketing strategy to your revenue. You’ll hone your sense of timing, and your business will grow as a direct result of insightful decisions.
So, how can knowing these key numbers help?
Well, these financial figures can tell you where you are right now, what steps you need to take to get where you want to be, and how to react to competition and mitigate economic hiccups.
For example, if you know you usually convert 10% of your website visitors into sales, and you know you need 15 sales to make a profit – then you can easily determine you’ll need about 150 people coming through your website’s virtual doors to precipitate profit.
Or, imagine this scenario. You and your family want to take a special, memory-making summer vacation, which will require an additional $10,000. If your business is operating on a 25% profit margin, then some quick number crunching indicates you need to generate a minimum of $40,000 to meet your goal. That’s a hefty chunk, and if you are currently basing profits on an hourly formula, that can be kind of rough to manage.
Perhaps it’s time to rethink the business model you are using.
Instead of relying on money exchanged for time, maybe you could expand your business in another way. You could develop a workshop to present next fall or conduct some paid tele-classes or webinars. You could hire a virtual assistant to take care of busy work, so you have the time to write and publish an book or ebook. A well-written relevant book can cultivate funds long after the final edit, generating exponentially more income than trying to squeeze life out of a finite number of hours in the week.
Knowing your key numbers will allow you to see your situation accurately and to help you make decision about what you need to implement to reach your desired income goals – and that relaxing vacation destination!
With key numbers at your fingertips, you can multiply profit by tweaking your business approach. Remember – you cannot manage what you do not measure.
Here are 11 benefits of knowing these primary business figures:
1. More resources to outfox competitors
2. Extra funds to improve branding
3. Cash to hire a virtual assistant
4. More spending money in your pockets
5. Ability to take family vacations
6. A tool to nix price-cutting habits
7. Avenue to avoid borrowing money
8. More time to meet with friends for coffee
9. Money to develop new revenue-generating products
10. Freedom to attend 90 percent of your kids’ extracurricular events
11. Work on whatever you want, whenever you want, and with whomever you want
Doesn’t that sound great?
Understanding and maximizing the elemental numbers in your business are critical if you want to build a company that pays you more while you work less. Focusing on your profit margin is the most effective way to grow revenue. Not being able to distinguish between profit, revenue, margin, and break-even points, however, is murky water you want to avoid. All sorts of menaces lurk there, and it’s this lack of awareness that destroys businesses every single day.
Remember, having a sustainable and profitable business goes beyond how much you make. It’s about how much money you get to keep.
Diagramming how you make money in your company is one of those fundamental business need-to-know building blocks and one of the things I cover with my private clients.
Not only will it allow you be make cash flow consistent, but it will give you the clarity you need to make strategic decisions. It will give you confidence when you see a money pit and need to cut your losses. It will give you the ammunition you require to shake things up and restructure operations if necessary. A savvy business owner knows how she is making money and how to keep the most of it.
Take time – right now – to become intimately familiar with your past, present and future key numbers, so you can grow consistent profit. Take a look at your business model. Does it match your personal priorities? What can you change? What should you add? Are your marketing strategies tied to your revenue?
Speak to your bookkeeper or accountant and find out what kind of margins you have. If they are not very healthy, brainstorm ways to beef them up. Find out your conversion rates. Could they use a boost? Maybe you should repackage your products and pump up your prices a little. The only way you can safely do these things is by knowing what the spreadsheets mean. If you don’t know how to interpret them, then you need to ask someone!