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Does Your Business Have a Safety Net?

Does Your Business Have a Safety Net?

One of the most important parts of managing a business is making sure there is enough cash to keep the business going. As a business owner, you probably have a very good idea how much cash you have in the bank at any time. The smaller your business is, the more likely you are to keep a close eye on cash.

Checking your bank balances is a daily function you should be on top of. Yet there is another often-overlooked responsibility that many business owners don’t spend enough time on, and that is managing your future cash, especially in light of unplanned situations. Looking ahead helps reduce your business risk and allows you more time to correct any upcoming dip in your cash balance.

Having enough cash is akin to having a safety net for your business. It can sometimes even mean the difference between staying in business and going out of business. To plan how much you might need for your safety net, you can use a few different methodologies.

One way to plan your safety net is to prepare for the worst-case scenario. How long would your cash hold out if no revenue were to come in but all expenses kept going out? Some questions you might ask:

  • At what point will your cash run out? How many weeks or months of cash do you have? For the purpose of preparing for a disaster, you can and should consider both your operating expense balance AND your profit, or rainy day vault, balances.
  • Do you have a line of credit you can tap at a bank?
  • Do you have other loans or sources of cash that you can tap quickly in case of emergency?
  • What expenses could you shut down without hurting your business if you had to?

Another way to plan your safety net is to do what is recommended by the Profit First methodology: accumulate the amount of cash you need for two to three months’ worth of operations and keep it on hand in your Vault account. Alternately, you can make a plan to liquidate that much cash on a very fast basis and only put your plan in place if it’s needed.

An easy way to get these numbers is to look at your bank statements in conjunction with your average monthly revenue and monthly expenses. If that’s all Greek to you, no worries. Feel free to contact us and we can help you figure out a safety net number that you’ll feel comfortable with and that will keep your business risk low.

Once you have a safety net in place, you’ll gain peace of mind for your business. It’s one step in an overall disaster preparedness plan that you can make for your business. If we can help with any questions, please contact us at any time.

Are you a Procastinator?

Are you a Procastinator?

Would you call yourself a procrastinator?  If so, you’re not alone, and with our to-do-lists growing daily, the percentage of people who procrastinate chronically has increased over the last few decades.  Would you call yourself a procrastinator?  If so, you’re not alone, and with our to-do-lists growing daily, the percentage of people who procrastinate chronically has increased over the last few decades.

There’s a difference between procrastinating and prioritizing.  Great entrepreneurs know how to put the most important tasks first. There’s also a difference between procrastinating and being overloaded with tasks; that’s another problem called delegation (or lack of it), and that’s a topic for a later article.

If you need a little motivation getting things done that you are procrastinating, here are five quick tips.  Even if you aren’t a procrastinator, these tips may boost your productivity.

1- Check your willpower.
Think of your willpower like a tank of gas that you use up every day.  By the end of the day, it’s gone.  If you leave tasks that you procrastinate until the end of the day when you have no willpower left, chances are they won’t get done.  Instead, re-arrange your schedule so that the tasks you are procrastinating on get done on a full tank of willpower, usually in the morning.

2- Set an internal deadline.
You might respond well to external deadlines when everyone is watching or there are consequences for missing them. If so, then make your internal deadlines external ones by announcing them to the world. Having friends ask you about the deadline will incent you to keep your promise.

3- Treat your success.
If you completed the task you have been procrastinating, then stop and reward yourself.  Your reward should be personal, something you enjoy. Perhaps it’s a spa day, a movie during the week, a long lunch with friends, or just a leisurely walk.
Hopefully you will want more rewards, so you can set a new one for the next tasks you complete.

4- Break it down.
Sometimes procrastination is the result of feeling like the project is just too big.  If you have a large project looming ahead, break it down into smaller pieces that you feel are more manageable.

5- Find your power hour.    
Everyone has a time of day where they perform the best.  For early risers, it’s the crack of dawn.  For late night owls, it’s past sunset. Find the time of day where you have the most energy and motivation, and plan your difficult tasks accordingly.

Almost everyone procrastinates on their least favorite tasks. Let these tips help you boost your productivity and reduce your procrastination.

If we can help with any questions, please contact us at any time.

Why Having a Spending Plan Is Important

Why Having a Spending Plan Is Important

As an entrepreneur, you likely place a high value on freedom. When the word “budget” is mentioned, you might cringe and feel like it hampers your freedom. But it’s really the opposite.

That’s one reason I like to call them spending plans instead of budgets. More people get more excited about spending than budgeting. If we plan our spending, we’re really just budgeting.

Here’s why creating a spending plan also creates freedom in your life.

According to a 2019 article in Small Business Trends, “Startup Statistics – The Numbers You Need to Know,” 82 percent of businesses that fail do so because of cash flow problems. Even if your business is no longer a startup, the failure rates for businesses started in 2014 were as follows:

● 20 percent failed to make it to their second year,
● 30 percent failed to make it to their third year,
● 38 percent failed to make it to their fourth year, and
● 44 percent failed to make it to their fifth year.

Many of the reasons for business failure can be prevented with good financial planning. Here are some benefits of making a spending plan and managing to it.

● A spending plan helps to control spending by seeing what’s available beyond your cash balance at the time.
● Impulse spending can be curbed by avoiding spending on anything that is not planned for.
● If a loan is needed to finance the business, you have a better idea of how much you need and how to best schedule the loan payments.
● Your chances of business success increase with a spending plan.
● You can see future revenue shortfalls so that you can take proactive steps to boost sales.
● You can better manage growth.
● You have a better idea of your profit level so you can make pricing changes, tax predictions, appropriate compensation, and other strategic changes.
● You can plan for large expenditures such as asset purchases and time them better for cash flow, loan acquisition, and other considerations.

Getting started with a spending plan is easy. If you’ve been in business for more than one year, you can start with last year’s actual figures and then adjust for the growth and changes you want. The numbers can be input into your accounting system so that you can get reports that measure actual progress versus the spending plan numbers. You can then make good business decisions based on your variances.

We have a great template to help you get started that also incorporates your Profit First accounts. Since those are not expense accounts, your accounting system usually won’t allow you to budget for them. However, it is important to see how the profit, tax and owner’s pay you’re setting aside first now affects your operating expenses. Our spending plan template gives every dollar in your operating expense account a purpose.

When you take a little bit of time to create a spending plan, you really can enjoy the freedom of knowing you’re on track to make your numbers. If we’re not already working with you on your spending plan, feel free to reach out to find out more.

Summertime!

Summertime!

Many fitness business owners we’ve spoken with recently have been experiencing slower revenue in the last couple months than their average revenue per month over a twelve-month period. It can be attributed to many things: nicer weather leads people outside for fitness rather than the gym, vacations take people out of town, etc. The reasons don’t matter; we want to minimize its effect on profitability.

One way to do this is PLANNING. If there are slower months, then there must also be faster growth months. When the revenue is higher than normal, put away the “extra” to help get through the slower periods. This is a perfect example of when in doubt, open an account. That’s right, here’s another account to consider.

The second way to minimize the effect on profitability is to have INDICATORS as to when it’s happening. The income account is the perfect indicator. If Profit First has been implemented for over 12 months, there is history in the income account that can predict higher and lower revenue months. If implementation is more recent, a daily check can tell if appropriate progress is being made to revenue goals. It’s important to know what revenue is needed to ensure current allocation percentages will cover all expenses AND owner’s pay, tax and profit allocations. Once the revenue goal is determined, it’s fairly easy to review the bank balances and determine if one is on track or not and adjustments can be made.

Finally, profitability is SCALABLE. Profit First is not a switch. It is a dial. It cannot be turned on and off but it can be dialed back. We never want the profit allocation percentage to fall below 1%, but if there hasn’t been enough time to see the indicators and plan for a small, short-term downfall, we can always go back to just the minimum PROFIT and keep the ball rolling in the right direction while we weather the Summertime Blues and wait for the Back To School Rush.

As always, contact us if you’d like help determining your revenue goals and/or bank performance indicators to be watching on a more regular basis than only when allocations occur. And, if you decide to dial back your profit allocations, remember you can also revert them back up faster than the quarterly changes we recommend when first implementing Profit First.

Ready to MAXIMIZE Your Profits?

 Learn how with a FREE Download of the first five chapters of Mike Michalowicz’s book, “Profit First”. 

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