Now that your small business accounts and tax (for the previous tax year) are done and dusted, consider taking some time to reflect on your business’s performance over the year. What went well? What didn’t work out? What could you do to improve over the next twelve months?
Here are my 7 tips to help improve your small business finances.
1- Step back and do a financial review
It’s ok to find numbers scary and numbers aren’t everyone’s cup of tea but try not to make this an excuse to avoid dealing with them. Numbers are a key ingredient in the ultimate success of your business and it’s important to start using the information buried in your figures to help drive your business forward.
Ideally begin with your profit and loss account (or summary of your income less expenses for the year).
Many small business owners progress through the year with a “gut” feel about how their business has been performing but rarely do they have an accurate view of the profit on the sales they have made.
Looking at the figures in this detail will help you make useful decisions about your business
- Are you pricing enough for your goods and services? In my experience this is one of the most commonly overlooked factors by small business owners. Too often, trading losses or low profits are viewed as acceptable by owners who don’t have the confidence to price their product or service higher. Think long and hard about your pricing. You can read more about pricing in my earlier post, 3 common pitfalls to avoid when pricing your product or service
- Are you spending enough? If sales have been low and you’ve reviewed your pricing strategy, perhaps you need to spend more on marketing. Don’t discount the possibility of outsourcing other functions that may free up valuable time you could more usefully spend in the business.
- Are you spending too much? Review each and every expense and ask yourself whether the expense is still necessary
2 – Plan and prepare a simple budget
Incorporate these targets in your business plan.
Don’t panic if you’ve never drawn up a business plan – this can be as little as a page in length and should aim to cover your vision of where you want your business to be in a certain timeframe.
A few simple financial goals could be;
- How much income you want to achieve for the next year
- How much profit you want to achieve
- Measures to enhance your cash position
The next step is to flesh out the detail. You will need to prepare a simple budget, which will encourage you to work out how you are going to achieve your financial goals month by month.
There’s no complicated formulae to preparing a budget – it’s just an honest view of what you think will be going INTO and what you think will be going OUT of your business each month.
Having set your targets, you will feel more motivated to sit down and update your figures and measure your business’s performance against your expectations. You’ll be surprised at how much progress you will make when you have clear targets to achieve and a vision to follow.
3 – Review your Payment terms
If you invoice your customers, how long do you give customers to pay? Do you state your payment terms on your invoice?
If you’ve done an excellent job for a client, there’s no reason why you shouldn’t request payment within 7 to 14 days from the date of your invoice. Always state your payment terms clearly at the bottom of the invoice.
4 – Don’t get caught up wearing the “hat” you like best
You’re passionate about what you do and driven to making your venture a success, so you immerse yourself body and soul into dealing with every aspect of your small business.
“Wearing all the hats” works well in the early days when you have more time at your disposal but once the business starts motoring ahead, it’s easy to get caught wearing the “hat” you like best and let slip some of the other important tasks such as regular recording and checking of your numbers.
But here’s the thing. There’s no prize going for the business owner who successfully manages to wear all the hats. You’re in business to make money and your reward will be building a sustainable and profitable business.
Outsource what you can’t manage yourself or alternatively invest in one-off support that will improve your efficiency for the long term.
5 – Develop a passion for learning
- If you’ve never networked, research local groups that may be a “good fit”. Alternatively look at setting up your own networking group
- If you still invoice your customers using Word templates, consider saving your time by using accounting software, some of which is freely available
- Improve your “blogging skills”. Lisa Barber of Roots and Wings.biz runs the very popular course “blog like a pro”
- Attend local courses to learn new skills. The Workstead in Winchester offers excellent workshops on a host of skills pertinent to small business owners – social media, tax, bookkeeping and marketing.
Try and build time into your schedule, for business development, to consolidate existing skills or learn new ones. You will come away with a great sense of achievement and your business will benefit. An extra bonus is that any further learning coming under the banner of “continued professional development” is tax deductible.
6 – Set aside dedicated time for doing your bookkeeping
Too many small business owners, spend a frantic week in advance of the self-assessment deadline, downloading their bank statement data and analysing out expenses for the year, all in one fell swoop.
This approach is short sighted for a variety of reasons:
- By not reviewing your numbers regularly and comparing them to your financial targets you will have no steer on how your business is doing or where it is going
- By not recording or checking your numbers regularly you will increase the risk of not picking up any errors in your income and expenditure figures
Set aside a regular time in the week to update your records, invoice customers, chase late payments and check your figures against the bank statement. Adopt the the mantra “ little and often” . It really will pay dividends.
7 – Don’t stop marketing your small business
Having a marketing strategy is not something restricted to larger businesses or a one-off investment when you start your business.
If you’re a freelancer and familiar with the “feast and famine” cycle , you may have found yourself up to your eyes with client work for six months of the year but then when the number of contracts start to wane you’re left high and dry, until the time you start marketing and gaining new business.
As with your bookkeeping, marketing is something that you need to work on all the time.
Devise a strategy for the year and stick to it. Your plan may include regular blogging, social media updates, regular newsletters, attending networking events or giving talks.
You will need to be attracting NEW clients but also ensuring that your existing clients remember you!
It takes a lot of discipline
We all love to immerse ourselves fully in what we enjoy doing best and this inevitably results in spending all our time working IN the business and insufficient time ON the business.
It takes a lot of discipline to make the time to step back and reflect on our performance, to review, plan, take action and review again. I can’t stress enough how important this whole reviewing cycle is to ensuring your small business becoming profitable and sustainable in the long run.
Always set financial goals. Make sure you record and review your numbers regularly. Outsource what you can’t manage and keep learning new skills, preferably those that will ultimately make you more efficient and profitable.
Need some help?
It’s ok to find numbers scary and to feel overwhelmed by what you don’t understand, you’re not alone. Many small business owners are going through the same angst and burying their head in the sand over the exact same issues. If this is you, the best thing you can do to help your small business thrive is to seek assistance.
Hi I’m Karen and my aim is to help and support small business owners just like you, get to grips with the numbers side of your business, whether it’s working out tax, support with record-keeping or helping you feel more comfortable with understanding what the numbers mean. Here’s how I can help you. And this is where you can contact me .
Over to you
Do you sit down to review and plan for your business? What is your experience in dealing with any of the above suggestions to improve your small business finances? I’d love to hear from you so please do leave your comment in the box below.
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