Facing up to financial facts: 3 steps to focus your priorities
As a business woman I have a matter-of-fact approach to finance. If you want to make a profit you need to have more money coming in then going out. You need to make sure that you are not losing a significant amount of money on a large aspect of your business, and that you have a broad spread of customers to supply you with a regular income.
There are three core areas of your business which you need to focus on – cash flow, sales analysis and cost control. Focusing on these will allow the rest of your priorities to snap into focus.
Devise a control mechanism for tracking your cash flow. Literally log all your costs daily for totally accurate results. Create a spreadsheet and list everything that goes on in the business – all financial incomings and outgoings, try also to include forward projections. Create other spreadsheets for sales forecasts, costings and bank balance. Link all the spreadsheets together so you immediately can tell what profit you are making and how much cash you have available to you at any time.
I used this spreadsheet method for my own company. It was so simple and effective, I have never had to learn another method.
Your sales analysis should include a breakdown of anticipated sales per month. This analysis should tie in with your cash flow so you can determine how much money is likely to come in over the next financial year.
The level of detail you include in your sales analysis depends on what type of product you are selling. Always make time to make sure that your figures are accurate otherwise the whole process will lose its significance.
Prepare a break down of costs for each product or service that your business provides. Customers want to know the price, and how can you negotiate with them if you do not know the unit price or what a cost-effective deal will be for both you and the customer?
Accurately costing is one of the hardest aspects of a business. Mistakes will be made along the way, but you can reduce these errors by making sure that you continuously review, assess and re-evaluate. There are many variables in business – reduce potential negative impact by trying to identify as many as possible.
Analysing costs does not complete your financial management. Planning to make a profit should always be your first priority – and then you make sure that you follow through. This is important to secure the overall business while also making sure that you make a profit and that you are not repeating past mistakes.