By the time you get to the end of this post you’ll discover an easy to use tool that is probably already on your computer that no matter where you are in your business, whether you’re just starting out or you’ve been in business for a while, you can use to build and increase your business bottom line
How do you increase the bottom line in your business and why would you want to?
Being in business for yourself requires you to learn lots of new skills and an essential one is money management.
This is an essential skill to learn if you not only want to keep on top of your business finances but also to grow your business, but sadly it’s something that a lot of business owners neglect or ignore altogether.
You’ve probably all heard the statistics of the numbers of business start ups that fail in the first five years.
Theo Paphitis, of Dragon’s Den fame, suggests there are a number of reasons small businesses fail, he says one of the reasons they fail is “because they don’t do their homework”, you can read his Guardian article by clicking here
In my opinion the number one reason businesses fail is because they do not manage their cashflow.
I’m going to show you how managing your cashflow can increase your bottom line by at least 10%, who’s excited about that?
You’ll discover how managing your cashflow is so exciting you’ll get addicted to it.
So it’s time to put on your big girl pants and get serious about your business!
Managing your cashflow starts with:
1. A good bookkeeping system, and
2. A business plan
1. A good bookkeeping system does not need to be complicated or use fancy software. I always recommend using Excel, Numbers if you use a Mac, or the equivalent in Open Office. Take it from me, I’ve been an accountant for over 30 years and I know this is the software that accountants recommend and prefer.
This is especially true for service based businesses, such as VAs, where there is often one person running the business, nothing complicated is needed, simple is good.So, keep it simple, use Excel (or the equivalent), your accountant will thank you for it and her fees will be kept to a minimum, how’s that for a win, win?
2. A Business Plan – I hope when you started in business you had a plan. Your plan would show you how you wanted your business to develop and where it would take you. In association with that you need a financial plan. It’s not too late to put a plan together and it is essential to also have a financial plan so that you can work with me on increasing your bottom line. Without a financial plan you won’t have a starting point.
Assuming that you have a financial plan or that you can put one together, you now need to translate that into a cashflow forecast so that you can work on making your bottom line get bigger.
First of all I want to talk about the difference between a cashflow forecast and a profit and loss account as this is the most searched for term on my website.
The purpose of a cashflow forecast is to forecast your flow of cash. I’m not trying to be funny here, but that is exactly what it does! It forecasts all the incomings and outgoings of your business. You could also combine it with your other household incomings and outgoings so that you get your complete financial life picture, or you can just do it for your business, the choice is yours.
A profit and loss account, is just a record of your taxable income less the allowable expenditure (for tax purposes) of your business over a set period of time. This could be annually for tax return purposes or more frequently, for example monthly, if you want to monitor your business profitability on an ongoing basis. You might need to do this for investors or to keep a check on it so that you can see how it compares to your financial plan and so you know what your future tax liability will be.
It is important to remember that your cashflow forecast will include every bit of incoming and outgoing cash whereas your profit and loss account will only include the income and allowable expenditure of your business not, for example, monies that you have put into or taken out of your business for your own use.
So in simple terms the cashflow forecast is a prediction and the profit and loss account is the actual trading figures.
So now you should be clear on what a cashflow forecast is and now we’ll look at how you can increase your bottom line. By clicking here you can download an example cashflow forecast
You should see income and expenditure headings you are familiar with if you do your own bookkeeping or if you have been self employed for any length of time.
This is where a business and financial plan becomes vital. The figures on your cashflow forecast should reflect your plans. For example, you might work on an hourly rate, so the income you can earn is limited by the number of hours per week your can or want to work.
On the expenses side of the cashflow forecast you will have expenses that are fixed every month, for example bookkeeping : , your email list handler e.g. Aweber and other monthly subscriptions that are essential when running a successful business. You will also have other expenses that are variable every month e.g. telephone and travelling expenses.
I have pre-populated the cashflow forecast with some estimated figures, on a monthly basis, but you can fill it on a weekly basis if that is your preference and this will make a much more detailed cashflow forecast. Personally I fill mine in on a weekly basis as that is what works for me.
You’ll remember from earlier the Theo Paphitis article that you need ‘educated projections’, in other words projections based on known information and best guesses for your particular business. This becomes easier as you build your business and you get regular contracts. Remember to include any monies you draw from the business for your own personal use.
So, from the example spreadsheet you will see that in Month 1 your cash surplus (income less expenditure) is £2235.02. This we carry forward to the start of the following month and so on.
Then at the end of the twelve month period you will have built up a nice sum of money that you could for example re-invest in marketing your business or draw some out for a nice treat. You’ll be able to do this in the confidence that the money will be there to do so.
Can you see how this can get exciting?
Let’s look now at how your bottom line can get bigger.
You’ve got the basics entered onto your spreadsheet and it now becomes an extremely useful planning tool in its own right.
Try increasing one of the income figures and you’ll see how the bottom line increases right across the sheet. I for one find this very exciting!!
Have a look at how you could potentially increase your income. Could you do that by taking on staff or any assistant? Can you give yourself more free time by outsourcing work you currently do yourself? (remember to include those expenses in your sheet)
Review your expenses, is there somewhere you could make savings?
Having a sheet like this means that you can see your business income and expenditure in one place and I’m sure you can see that it is a valuable business planning tool. It is something that you should update regularly with your actual income and expenditure so that your bottom line is always as up to date as it can be.
Keeping a check on your business financials in this way means that you always know how your business is (hopefully) growing and enables you to be proactive in planning for the future.
I have been an accountant for over 30 years. Seven years ago I started www.morethanabookkeeper.com offering a unique bookkeeping service for women business owners, who I consider to be under served by the accountancy profession. I offer a personal service tailored to your particular business and requirements, whether you are a one woman business or a much larger concern and I specialise in online businesses.
For Three Simple Steps on how to get started with your own accounts you can buy my Accounts Without Fear e-book by clicking here