Years ago I saw speaker’s agent Holli Catchpole (one of my idols!) give a talk at an NSA conference. She was talking about how she and her then boss, Tony Alessandra, kept a close eye on the accountant’s reports. They were constantly studying the Profit and Loss sheet to see where they could trim expenses or add revenue.
Keeping a close eye on my numbers has been in the back of my mind for years as I started and grew my business. It became a lot easier to keep a tab on things when I moved my books out to the cloud (Quickbooks online). Moreover, while you should know all of your numbers, there are a few critical numbers that you should concentrate on.
I asked Carolyn Crummey, small business adviser and editor at Smart Hustle Magazine, what common mistakes she sees business owners make when it comes to finances and accounting since she comes across businesses of all shapes and sizes and has a firm understanding of their struggles.
Carolyn says, “There are two common scenarios that I run into with businesses when it comes to finances and accounting: 1) They do not know what numbers to look at, so they do not look at all, or 2) They have someone else manage their books and just assume all is well. In either case, they only have a general idea of what they are making and what they are spending, but no real idea of the correlation between profits and expenditures.”
Here are some ideas Carolyn shared on how you can get control of your numbers to grow your bottom line.
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Create a Budget
So many business owners fail to create a budget for their business and instead spend ‘as needed’. This makes it tough to manage business profits. Creating a budget does not have to be a complex project or take more than an hour. Check out this article and video from Smart Hustle on how to create a budget in 1 hour based on your previous year numbers.
Keep a Close Watch on What You Are Spending
It is incredible how many businesses spend money on items they no longer use or need. It is actually quite common in today’s world of cloud-based software and monthly recurring subscriptions. Look each month at your expenses and make sure you can identify exactly what all charges are for. If you are paying for a subscription or program that you no longer use, cancel it immediately.I recently went through an operations review with a company and upon reviewing their P&L statement, I found a $100 monthly expense that wasn’t categorized. We identified that it was a subscription program that they had not used in over two years! Boom – there’s $1200 a year back on the bottom line!
Understand Your COGS (Cost of Goods Sold)
When coming up with pricing for a new product or service, many business owners look to what competitors are doing or what the market will bear, versus their actual costs to deliver. This is especially true with services and digital products. It is crucial for businesses to understand the total cost involved with a product or service to ensure they have solid profit margins in place. Otherwise, they may just break even – or worse yet, lose money. When calculating your COGS, you need to take into account everything required to deliver the final product. That may include outsourced help, marketing, packaging, etc. Once you know your actual costs, you can set a price that allows you an acceptable profit margin. Moreover, don’t forget to go back every six months to check those costs to keep them in line!
Personally Keep Track of Incoming Money
You may think this one is a given, but it is very common for busy business owners to hand off opening the mail and preparing bank deposits to their administrative staff. While handing this task off to a team member may save you time, it also opens you up to possible fraud. Bottom line, if you open your bank statements yourself and study them, sign every check yourself (a tip from Oprah) and keep your eye on PayPal and your bank accounts, you’ll be in better control.
By paying close attention to your business financials and making smart decisions, you’ll quickly find ways to increase your bottom line.
Do you struggle with keeping track of your business numbers? Share with us in the comments below and we can all help you out!
See you soon Wealthy Speakers!