As a business owner, you have to pay your taxes, right …
In fact HMRC has a whole web site designed to assist you to hand over your ‘hard earned cash’ to the government.
This can, of course, be very painful, when you’ve sweated blood and tears, over years and years to earn your money.
Of course, I’m not suggesting you evade paying your taxes. That would be illegal!
But, you can be sure … you’re not helpless…
you can always make more money!
After all, the bigger your business grows, the more money you’ll be making, and paying tax won’t be such a big deal.
In this article we’ll explore the uncharted waters of finance, where the cash enters and exits your business, how to allocate funds to pay your taxes on time and the best ways to make more money and build a buffer in your business.
You’ll want to grab a pen and paper and take good notes because this is vital stuff!
Imagine this scenario…
1. You really understand finance, you’re in control of your financial performance, you know the peaks and troughs in your financial year and you set aside money each month, to fund marketing to build your business and pay your taxes from your increased profits!
2. You have a visual dashboard for your business which shows you where you are now and enables you to build a predictable revenue stream, predict your profit and loss for the next quarter, so you know where you’ll be in 90 days!
3. You set your prices at the market rate and you know you are making a profit on everything you do!
Sounds too goods to be true?
I know how you feel, because I felt that way too until I figured out how to become more effective in the financial side of my business, measure my financial performance, identify my business model and key performance indicators, raise my prices and get my money working for me.
Measure Your Financial Performance
In February 2009 I started using software to give me a visual dashboard of how my business is doing, see the trend and observe whether my six months profit and loss is up, down or flat, keep track of my income and expenses, complete my quarterly VAT return and creates a profit and loss account at the press of a button, it’s called kashflow.
Here are what I have learned from using kashflow since 2009…
Finance is the result of all the other activities in your business.
Like a way of keeping score on how well you’re doing.
There is an old adage – “turnover is vanity, profit is sanity”
Which means profit and cash flow are the really important numbers in your business.
There are a couple of key questions I ask business owners …
1. How much do you need to sell to start making a profit?
This is known as your “break even”.
Calculate your break even by working out how much turnover you need to cover your fixed and variable costs.
2. How much profit are you making?
To measure how much profit you are making you require a profit and loss statement for your business (ideally every month) showing your actual and cumulative income for that month against budget.
Here’s to your success in measuring your financial performance, and if you want to chat about kashflow and why it’s a good idea to invest in accounting software…
Create Your Business Model and Key Performance Indicators
Once you start making a profit, it’s important to understand what drives your business and what you can do to improve your results and profitability.
By stepping back and looking at your business you can create a business model that will show you what you need to change or “fine tune” to improve your results and make the business more predictable.
I help my clients create a dashboard for your key performance indicators that shows your results and the trend of your business, visually, on a month-on-month basis.
Some things to start measuring are …
Number of new leads
Number of proposals
Number of upsells
Number of appointments
Number of active clients
Number of active proposals
Number of leads
Number of conversions
Number of active clients
Number of upsells
Average number of months you retain a client
Every 90 days
Create More Value and Raise Your Prices
One fairly consistent trend that I see with my clients is you need to raise your prices.
Many businesses still sell based on cost plus…
in other words applying a percentage to manufacturing or production cost.
This is the way manufacturers used to price, and is not very effective for service based or information based businesses.
More useful is to set prices based on the value you provide to your client.
What are 5 value added services you can provide that will enable you to raise your prices?
And, finally, ensure all products/services you sell make a profit!
Hope you enjoyed this article and you’re becoming more confident with the financial aspects of your business.