Running a business takes a plethora of knowledge. When running a small business, it’s easy to get lost in daily operational woes. Novice small business owners will frequently embark on their new venture without having a full grasp of the financial aspects of the business—how will seasonality affect growth, how to avoid stagnation and how can market fluctuations impact revenue? In many instances, the small business owner may even make his or her personal financial security a secondary objective in their day-to-day activities. It’s absolutely critical for a small business owner to understand his or her grasp on financial literacy.
Understanding succession planning
Business succession planning is the process of understanding the logistical and financial choices that need to be made about whom will assume authority over your business upon your departure, whether retirement, death or disability. The first step in succession planning is to identify the successor that will take over the business, then determine how the business is to be sold to this person. This will involve a buy-sell agreement, often secured with a loan or insurance.
Understanding cash flow
Income and expenses. Small business owners need to know about the revenue that will be coming in, and how much is going out.
Income: Step 1 - How much are you making? Having a grasp on this involves understanding what products or services you offer, what is the average sale amount, and what is the profitability of each offering? And the ask yourself— does it make sense to continue to sell everything you’re currently selling?
Cost of Goods Sold: What does it actually cost to sell each product/service you offer? When you subtract this from your revenue, you’re left with your gross profit.
Expenses: Small business owners need to have a grasp on when the bills need to be paid! Due dates, scheduled debits, checks and payments checks are an essential piece of information that can’t be missed, otherwise, you run the risk of late payment fees. Be aware of how you are spending your business’ money so that you can quickly spot and reduce the amount of wasted cash! When you subtract your expenses, or overhead, from the gross profit, you’re left with net profit—and this can be used to calculate your net profit margin. This is useful when comparing your results to the compendium of data regarding similar businesses in your region of the country.
Stay tuned for part 2, which will include a discussion on accounting and leveraging credit!
What to ask your accountant
How do I help you help me? This is essential. Your accountant is there to help you and if you do not begin a line of communication to provide them with every essential piece of information, you can not assume they have the ammunition to do their best job.
How do we make this year’s tax season better than last year’s? Tax laws are constantly changing. Your accountant’s job is to understand the changes in these laws and to inform you on where your money and investments need to be so that you can retain as much of your hard earned cash as possible.
Are their industry-specific tax incentives? Running a non-profit holds an entirely different business model than a retail clothing store does. Ask your accountant if your industry has a niche that needs to be addressed.
How to leverage credit for businesses growth
Credit is your competitive advantage for growth. Imagine an amazing niche in market opening up and not having the capital to rapidly grow into the present opportunity. A business coach will be able to give you the insight to make the right decisions which will grow your available credit from lenders, then inform you on the best times to dip into this credit and spur growth. Cash is king, but good business credit is a factor that can’t be ignored.
At Prior Business Consulting, we provide a premier business coaching service that allows small business owners to make the most educated decisions possible. We provide our clients with measurable growth plans with detailed strategy and implementation techniques. We give you a road map with a timeline to achieve your revenue and profit goals. We know that every business is unique, even in the same industry. Contact us today to see how hiring a business coach can remove the roadblocks stopping your business from unleashing its full potential.