Is the business profitable?

The Profit and Loss statement will tell you if you are making a profit. This means, in broad brush terms, that the sales generated in the period are greater than the total costs in the periodof making or buying the goods and services you sold and, the costs of running the business during the period.

Is the business generating cash?

The Cashflow statement will show whether the cash you received in the period is greater than the cash you spent in the period.

Where is the money tied up in the business?

The Balance Sheet will show why there is not as much cash in the bank as you hoped. It will show you how much capital is tied up in the day to day running of your business.

When you look at the numbers in your business make sure you look at all three of the above statements as each will give a different view of your business. The trick is to make them all work together.

This is just a brief overview of the finances. I’ll expand on this in future ramblings.

The starting point for a lot of what I do with clients is getting them to define the business they want. If you can’t define it how will you know how to get it or when you get there. Most people have difficulty planning for one huge reason. They might get the assumptions wrong. Well, have I got news for you! Would you like a cast iron guarantee about business planning? You are going to be wrong! Get used to it!

I believe the purpose of planning is not to have a rigid outline of what you are going to do and how you are going to do it. For me, it is the process of planning that is more important than the actual plan. It is an opportunity to think the unthinkable, the illogical, the radical. It is a great chance to think about things without actually burning any cash or resources, other than a little time. If you can use some of the time when waiting or driving to do the thinking around your plan, your are not even “wasting” time.

Part of this is making time to think about what you want your life to be like. How do you want to be spending your spare time? What “nice” things do you want around you? If you can get an idea about this you can start to work out how much money you might need to have this life.

Only then can you build this into your business plan to see how to make this feasible. When you have a draft of a plan it is only then that you need to make a decision about how realistic it is or what dificulties need to be overcome to turn this into reality.

Make some time to think about what life needs to be like and this will help drive you through the difficulties of making the business successful. as you want it to be. It might take a little longer or be more difficult then you expected but it doesn’t mean to say you won’t get there.

For the rest of us it will NOT just be about being careful with cash. Keeping a tight rein on cash is a great idea all the time, not just during this credit crunch. My point here is that once you have as tight a rein on cash as you can have, what then? Rather than wait until you reach this point start looking at a more proactive strategy for surviving the credit crunch. I would suggest:

“sell profitable products and services to profitable customers and keep your costs under control”

Do you know which of your products and services are the most profitable for your business? Find out. Can you make them more profitable by adding value or controlling costs? Sell more!

Do you know who your most profitable customers are? This might not be the ones who spend the most with you. I know of some businesses that have “sacked” some large customers when they did the calculation to see if the level of sales being achieved was actually making any profit for the business. When you take into account the levels of discount they want, the length of time they take to pay, the amount of time and effort taken to service the account is there anything left for you? Find out. How can you make your existing customers more profitable for you? Where can you find some more? Sell to them!

Do you know what the key costs drivers are in your business? This includes the direct costs of supplying your products and services and the running costs for your business. Find out. Control them!

Do all this and continue to control the cash!

The good thing about the credit crunch for business owners is that it is causing them to behave as they should even during the good times. Why wait for the bad times to come to have the motivation to control your business? Do it all the time and the good times should be even better and the bad times won’t be as bad when they come along!

All the best for the next wave.

When I was thinking about what to write I was looking for common themes in conversations I have been having with clients since I last posted. The thing that came to mind was “worry”. Worry can be a good thing because it can motivate us to do something. On its own it can be very destructive.

I was speaking with a client who was worried about cashflow (not an unusual thing to worry about during this apparent credit crunch!). “I’m worried we are not going to have enough money”. When I asked her how much she thought she needed she said “I don’t know”. This, for me, is the wrong way round.

Get the facts, then worry (if necessary). NOT the other way round!

This worry was keeping her awake and distracting her from the real business of running her business. We did some work to calculate how much she might need. When we had done this we then used a a technique I call “pretend the bank said No”. This helped us to further reduce the requirement for funding and she was able to successfully approach the bank for a short term overdraft to get her through the short period of funding shortfall.

I hear many stories like this from the people I work with who run their own businesses.

If you are worrying, start by analysing what it is that you are worrying about. Harness that energy to gather the facts you need and get some help to face up to the issue. It’s amazing how often people end up saying “I don’t know why I spent so long worrying about that before I did something about it”.

If you must worry, know what it is you are worrying about!

So, here goes. Completely new to blogging and a bit of a technophobe but it seemed like a good idea. Only time will tell!

The essence of what I do can be summed up as “get the life you want: build the business you need”. Too many people who write about growing businesses seem to assume that the only way to have a successful business is to work all the hours you can, work as hard as you can and expect to not pay yourself very much. I think there is another way!

Make a plan! You don’t have to tell anyone about it or even do anything about making it happen but at least start with a plan. The purpose of the plan is to work out what your business would have to look like to give you the life you want. The first, and possibly most difficult bit, is to work out what you want your life to like. This is usually something around having enough money and having the time to enjoy it.

I’ll come back and blog some more about this soon because it is something I feel really strongly