Seven Dirty Financial Words You Can Never Say to Small Business Owners
“Not only do I not know what is going on, I wouldn’t know what to do about it if I did” – George Carlin
When it comes to planning and maintaining their finances, small business owners’ opinions tend to fall somewhere between unpleasant and severe loathing. The majority of entrepreneurs are visionaries and highly skilled in their specific fields so it should not come as a surprise that the tactical aspects of their ventures often get placed on the back burner. Even the mention of certain financial terms causes their skin to crawl and noticeable shuddering.
However, understanding and embracing specific financial concepts or tools can lead to more available time, increased sales, and higher profits. What follows is a list of several significant ones that I have coined the Seven Dirty Financial Words You Can Never Say to Small Business Owners… catchy, huh? Perhaps the label of the Killer B’s is more fitting:
1. Bookkeeping: In the simplest terms, Bookkeeping is the process of recording the financial affairs of a business. Accurate and efficient bookkeeping is a must for businesses of all sizes. This provides the data that is then used to assess the past, optimize the present, plan for future, set strategic goals, the list goes on and on. Financial records also facilitate protection of personal assets and are required by law. If your bookkeeping is inadequate, building and operating a successful business is exceedingly more difficult; like trying to win the Daytona 500 while driving with your eyes closed.
2. Budgeting: Budgeting is creating a financial plan for your business for a specific period of time, usually annually. Budgets can range from the executive summary of the prior year’s results to a comprehensive zero-based budget in which each dollar is carefully scrutinized. Regardless of the level of detail, a formal budget is an invaluable tool that provides focused feedback on how the business is performing compared to expectations.
3. Benchmarking: A skilled financial partner can provide guidance on your business’ performance compared to industry standards and your peers or competitors. Benchmarking analysis will nearly always bring to light opportunities for improving your bottom line. Some examples are if the business’ pricing is below the market, material costs exceed the industry average, or if there are lower cost facilities available.
4. Backlog: A business’ backlog can take many forms. Hopefully, it is a manageable backlog of work that will facilitate a constant revenue stream. However, invoicing backlogs are detrimental to the business and can result in cash flow issues. Establishing electronic invoicing will combat this and having the payment option of a bank transfer can result in a much-improved cash position. A backlog of payables can degrade your businesses credit and create friction with your suppliers so that too must be monitored and actively managed.
5. Banking: Reconciling bank accounts is part of the day-to-day responsibilities of your bookkeeper but leveraging your banking relationship goes far beyond this. The business’ credit rating should be monitored and improvements should be addressed with the bank for negotiating lower interest rates. Likewise, employing higher value checking, savings, and credit card accounts can allow for lower interest expense or increased returns.
6. Business Plan: A formal business plan was likely compiled when your venture was initiated some time ago but when was the last time you reviewed and updated this document? If your business has grown significantly, you have expanded into additional markets, or have added new product lines, it may be time to revisit your plan.
7. Beneficiaries: Just like significant changes in your business should spur you to revisit your plan, major shifts in your personal life require action as well. Is the existing ownership structure of the business still appropriate? Who will assume ownership if something happens with the current owners? Legal records should be updated and the changes well communicated to the involved parties to ensure there is full understanding.
It is human nature to fear and avoid what we do not fully understand. That is why it is important to learn how to deliver the amazing power of the Killer B’s and engage a professional for assistance if needed. Statistics show that small businesses have improved results 85% of the time when doing so. It can not only brighten your business’ future but also put you in the position of knowing exactly what is going on and what to do about it!