How to Know Your Numbers and Manage the Money in Your Business
Do you dread preparing for your annual tax return?
Do you have to steel yourself to check your business bank account, never quite sure whether it’s going to be in credit or debit?
If so, you’re not alone. Money is the number one ‘head in the sand’ issue for the vast majority of the business owners I work with – but as a business mentor, it’s my job to help them face their financial fears!
Feel the fear and do it anyway!
I understand those fears very well. When I started out in business (many) years ago, I didn’t understand the difference between profit and turnover. I was worried about looking stupid or clueless if I asked, so I didn’t. I just kept on muddling through every day with my eyes closed and my fingers crossed, hoping everything would turn out as it should.
Surely, if I worked hard enough, the money would start / keep rolling in? I’d be able to pay my bills and live my life, and everything would be fine and dandy.
Oh my goodness – how foolish; how naive!
I can tell you now, that’s the worst way to ‘manage’ your money!
For starters, how can you possibly know how successful you are, if you don’t know how much you need to live on, or how much your business is costing you to run?
(Take Note: a successful business spends, as well as makes, money).
The Importance of Knowing Your Numbers
If you don’t know your numbers, you’ll find it very difficult to plan for future growth. The reason is simple: how can you set targets for yourself, when you don’t understand what your starting point is?
The same goes for your customer charging strategy. Many business owners start out by charging what they think is a reasonable amount, with no idea whether or not that figure will cover their costs.
As an example, I once worked with a Virtual Assistant who charged £15 per hour. She thought this was fair, but once we sat down together and calculated her life and business costs, we discovered that she was running her business at a loss. If she wanted to keep going, she would need to charge at least £19 per hour.
If you’re fretting about your finances now, don’t worry! Getting to know your numbers is a simple process that shouldn’t take up too much time.
You should find it rewarding, too. Not only for the huge sense of relief you’re going to feel, but because you’ll understand exactly how you can help your business to survive and grow.
Get to Know Your Numbers by Budgeting
Start by setting aside some quiet time, armed with a few, recent bank statements, a calculator and a sheet of paper (or open up a new Excel spreadsheet if you prefer!)
Now, you need to create two lists:
List 1: How Much Do I Need to Live On? – This isn’t a business budget, but a calculation of the money you need to live from day-to-day. So, your budget will include things like your mortgage or rent, and those vital household bills.
List 2: How Much Does My Business Cost? – As I said, a successful business spends money as well as making it. So now it’s time to calculate the cost of everything you pay to keep yours running, such as professional memberships, marketing materials, and website hosting.
Now, add the two figures together.
As if by magic, the sum of these two budgets will reveal how much your business needs to make for you to break even, i.e., the business makes as much as it costs.
[To be successful you will need to make more than ‘break even’ – you will need to make profit. If you want some help to understand how, call me and let’s have a chat.]
How Knowing Your Numbers Helps You to Forecast Success
Now you’ve finished calculating those budgets, it’s time to put them to work!
Your figures are going to start telling you some revealing stories, about whether or not you need to raise your prices, if you can afford to bring in some support, or if you should start a brand-new marketing campaign.
You can also use those numbers to forecast how much you’d like your business to make in future, then create a realistic plan to help get you there.
So, if you offer a range of products or services, you can now begin to calculate how many of each you’ll need to sell, over a specific period of time, in order to reach your target.
For example, if your average customer spend per month turns out to be £200, then to make £2,000 every month you will need to find ten customers. From there, you are now able to devise a focused marketing plan, to help you achieve that specific objective…
…and start carving out a realistic path towards success!
I’d love to hear your experiences with business budgeting. Post your comments below…and don’t forget to sign up to my weekly email for more business hints and tips.
Prefer to talk about your own budgeting strategy in confidence? Call me.