Ignore the Financial at Your Peril « Tips Guides DOT net

Ignore the Financial at Your Peril

I’m always surprised by the number of business owners I encounter who do not have any financial statements generated for their business. Or if they do have such records, they never look at them. That is rather like getting on a flight and having no idea what destination you are flying to.

A kitchen design company hired me a few years back because they weren’t profitable, in spite of sales having grown from $80,000 in the first year of operation to $300,000 in year 2. Sales were increasing rapidly. The marketing program was running. So it made no sense that there wasn’t profits. Yet there weren’t any.

When I examined the business what I found was that expenses were way too high and the hourly rate they were charging wasn’t high enough to cover all the new staff hired to meet the sales demand. Invoices were slow going out and payment collection was not consistent. Essentially the owner was running a non-profit without any of the tax benefits. Every time she took on a new client, she was losing money out of her own pocket.

She had not noticed any of this because she had no financial statements done on a regular basis. She assumed increasing sales meant that the company was growing. But strong sales and marketing alone are not enough. You need a good grasp of your cash flow and financial health to know if the company is running in the right direction. Once her financial statements were done, we were able to fix things and move the company into profitability.

A smart business owner works closely with a bookkeeper and an accountant. These professionals will advise you on financing your business, tax minimization strategies and help you grow a healthy company. Get a monthly cash flow statement prepared so you know where your company is flying to!

Tips and Guides: A featured speaker, columnist and part of the Ghost CEO business coaching team, Fiona Walsh is an expert on growing profitable business quickly. Tired of seeing business owners work too many hours for too little money, she is passionate about taking the guesswork out of business development. Check out www.fmwalsh.com and www.ghostceo.com for more business tips.

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