Tuesday, 3 July 2012
Where are the business financials?
If business owners do not have all their financials and tax returns at their fingertips (and many don’t), it usually means they don’t refer to them to effectively manage their operations. It also may mean they don’t understand them.
Business owners should regularly review their financials with their accountant and other advisors to do the proper planning necessary for a successful business. Plus, when it comes time to seek financing or sell the business, these all-important report cards must be immediately available.
Depending on the business type it is often recommended that you review your businesses performance on a monthly basis and in some cases weekly. By staying focused on some of the key drivers a business owner can quickly analyze and assess performance, trends, and potential potholes:
· Revenues are the driving force in any business. A demonstrated growth in revenues and increases in profitability over the past 3 years will help drive a business’ value up.
· Expense controls can dictate overall profitability. Rent and tenancy costs, advertising and promotion, interest, general office costs, maintenance, etc. are all key areas where most business can find ‘smart’ ways to minimize those expenses without jeopardizing current and future revenues.
· Employee wages and productivity often make the biggest impact to overall profitability. Regularly reviewing production levels of all employees, as well as quarterly or semi-annual performance appraisals are effective ways to know the pulse of a business’ most valued resource.
· Cost of goods and raw materials needs to be shopped. Good vendor relationships are typically critical to securing low costs and favourable terms. ‘Shopping around’ to ensure you are getting the best bang for your dollar is a necessity and should be scheduled into regular intervals. It is often easier to maintain your current partnerships, however, those partners need to know and understand you will continue to demand the most competitive rates.
· Receivables and payables can spiral out of control without a firm handle. Depending on the cyclical nature of business or market expectations on terms; managing your cash-in and collections for some businesses is a matter of success or failure. Taking advantage of quick pay discounts or matching extended payment terms with receivables are strategic financial decisions that need to be managed regularly.
A recommended way to ensure business owners have and review their financials is to schedule regular ‘executive time’. Taking a Saturday morning once a month to review without interruption, dedicating the last Wednesday evening of each month to your own personal ‘board meeting’ or starting each Monday with an hour examination are all ways to ensure you prioritize your time. By scheduling your time and prioritizing your agenda it won’t be long before you start seeing better results in profitability and build your business’ value.
Do you have small business questions you would like answered about this article or others? Please visit www.VRWindsor.com or call 519-903-7807.
William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.