What Every Business Proprietor Should Know
How much revenue you need to generate to break even?
Exactly how much you need to sell each week to cover your costs will help you make better business decisions.
Your break-even point is important. It allows you to understand the impact of changing conditions on your business, and it allows you to make changes to ensure you do not operate at a loss.
Do you use cash flow forecasts to manage your business?
You should know how much money is likely to come in and how much money you’ll need to pay out from time to time, to have enough cash to meet expenses.
Do you have enough cash reserves or forward orders to make it through the next two months?
If you have a two-month buffer of cash reserve, or forward orders you should have enough time to put survival strategies in place before you run out of cash.
Do you review your debtors and vigorously chase slow payers?
You pay your bills on time and so should your customers. Otherwise, your money is funding their business.
Managing your debtors’ book is essential to ensure the cash flow of your business is not affected. The sooner you can identify and act on late paying customers, the better your chance of getting paid. If debt problems get out of hand, they could affect the cash flow and reputation of your business.
Do you review your own expenses on a monthly basis?
Monitoring business loans and the amount of debt your business runs up on a monthly basis, will ensure you don’t end up owing more than you can afford, which could lead to eventual business failure.
Are there any unplanned future financial issues that will affect the profitability of your business?
It’s important to know there are no financial issues coming up that could derail your business financially. The last thing you need is an unexpected expense.
THE FOLLOWING QUESTIONS SHOULD HELP TO APPLY YOUR MIND TO THESE ISSUES
Do you make a profit on every product or service that you sell?
Often small business owners fall into the trap of being very busy but not actually making any money. It’s important to trade for profit, not sales.
Do you monitor all your business operations regularly for early warning signs?
It’s very easy to get bogged down in the day-to-day running of your small business and not notice when something goes wrong.
You need regular information on key parts of your business to monitor operations and solve any issues before they become much worse.
Are your sales seeing year-on-year growth that is keeping pace with, or higher than, inflation?
To stay in business, your sales need to at least match or preferably exceed the rate of inflation. You should monitor your sales performance on a monthly basis and consider how your actual performance compares with your expectations.
If you have falling sales and don’t see any future growth, then the viability of your business could be in doubt.
Do you consult with your business advisers when you need to?
There’s no need to carry all the stress and worry of a deteriorating financial situation by yourself.
Having others provide an impartial point of view and help you make some tough decisions can make all the difference between success and failure.