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The key to running a successful small business is actively managing your businesses’ finances. While many owners run a check on their cash flow periodically, running a full financial checkup on your business should be done more than once a year. A mid-year review allows you to track progress, identify deficiencies and make some necessary financial changes to stay on track towards hitting your financial goals.
Since the first part of 2020 brought about an unexpected economic downturn, looking at your business’s financial future might be the last thing you want to do. But there are plenty of things you can do now to pull yourself out of crisis mode and get back on track. Here are 4 steps you can follow to conduct a financial checkup for your business:
1. Assess the current situation and your immediate business needs
The first step is to evaluate your current situation.
With the world being turned upside down in the aftermath of the COVID-19 pandemic and subsequent economic crisis, it’s understandable that your projections may be off. If that’s the case, you’re not alone. Now is the time to take a look at where you stand and evaluate your upcoming needs. This is also a good time to assess any changes that have taken place in your business. Perhaps you have laid some people off or released a new service. Depending on your circumstances, it may be necessary to rethink your goals and budget.
Look at the data you’ve collected over the past 4 months. What has changed? How much revenue did you pull in each month? How many leads did you generate? How many clients did you win? What were the factors that contributed to these results? Capture all of that information, take a moment to analyze it.
2. Analyze your numbers
Since things change daily, having a proper understanding of how much money your business has from one moment to the next is very important in ensuring your business has enough money to keep running. Cash flow management is keeping track of this flow and analyzing any changes, which, in turn, allows you to spot trends, avoid obstacles, and identify opportunities in your business.
The first step in building a strong financial foundation is getting a firm grasp on your cash flow, and the key things to look for when pulling together a cash flow statement is revenue and expenses.
With all of this information in one place, you can see where you might be spending too much or where you could be spending more to grow your business. Your cash flow document will allow you to plug in your revenue and expenses to understand how much money is flowing in and out of your business each month, and it will allow you to start making projections into the future.
3. Identify your goals
Based on your current cash flow, you need to evaluate your financial goals. Take a look back at the goals you set for your business earlier this year. Are you on track? If not, where have you fallen short?
If you’re ahead, what new goals can you set for yourself? If you’re behind, how can you readjust your future goals to hit your year-end goals, or is it time to set a different goal?
Next, consider any new goals you would like to set. For example, maybe you would like to raise your cash threshold or hire a new employee. Decide what you want to accomplish this year and establish clear goals.
Once you have those big rock items, go ahead and brainstorm some initiatives you can use to achieve those goals. Once you’ve identified 4-5 for each goal, prioritize each initiative by the resources you have available to you. From there, you can break your goals down into clear, actionable steps.
4. Adjust your budget
Once you have your cash flow analysis you will have absolute clarity on your businesses’ financial health as well as some future projections. Because of this, you can see where your business currently stands compared to your previous projections. Look at your budget, does it match your current situation?
If your financial plan is out of alignment, now is a great place to start getting things back on track. Readjust spending and strategize on how to boost performance for the rest of 2020. If you’re underperforming, consider revising your budget and cutting costs. Increasing your prices or your conversion rate can have an immediate impact on revenues and profit. You could also consider pulling from your marketing budget and moving to lower-cost options or reducing production costs.
On the other hand, if your business iS doing well, consider reinvesting it in other areas. Put more money towards marketing in the second half of the year or hire more employees.
Whether you are managing your own financials or delegating the task to someone else in your company or a third party, having a little help with your accounting can go a long way to better manage and monitor your business’s health. Remember that it’s important to stay up to date. Review your cash flow statement regularly and get clear on how much money is flowing in and out.
If numbers aren’t your thing, and you don’t know where to start, you don’t have to go at it alone. Schedule a free two-hour session to dig into your business and develop a plan.
What steps are you taking to give your business a financial checkup? Let us know down in the comments.
This article originally published on GREY Journal.