Make Your Business Stronger (and More Respected) Financially
The end of the year is a great time to take stock of what’s going well in your business... and what’s not going so well. It’s a perfect opportunity to step back and look at things in a more big-picture kind of way. Here’s a list of eight things to consider as you look back on the year and begin planning for the coming year:
- Stop doing things that lose money. One of the fastest ways to increase profitability and cash flow for the coming year is to stop doing things that lose money. Maybe you have a division of your company that is losing money. Maybe it is one of your product lines. Maybe it is one of the services you provide. Or maybe one of your customers consistently uses more resources than they pay for. Peel the onion a bit and see if you can find one area of the business that is losing money. Then give some serious thought to stopping it. This post on my blog goes into more detail to help you make the tough decision to say “stop”.
- Learn what’s really going on with your cash flow each month. By understanding your cash flow I mean being able to sit down with a lender or shareholder (or yourself) and explain what happened to the cash last month in a two-minute conversation. And it should only take ten minutes a month to get to that level of understanding. This article will show you how. Cash flow is too important to just assume (or hope) all is well.
- Pick an important business process to simplify. Great execution separates mediocre businesses from excellent ones. Take a couple minutes to identify a few of the key processes in your company that can be made better. Preferably a process that touches your customers. If you can make something easier or faster or more reliable for a customer, you have increased your hold on that customer’s business well into the future.
- Create monthly cash flow projections for the next six months. You wouldn’t drive down the freeway at 70 mph with a blindfold on. Trying to run your business and make good financial decisions without cash flow projections is the equivalent of wearing a blindfold. Take a baby step and have your CFO create monthly cash flow projections for the next six months. Then compare each month to the actual results when the month has ended. You will be amazed what you learn. Here’s why cash flow projections are the ultimate confidence and credibility builder.
- Use your monthly financial reporting process in a more strategic way. Most lenders, shareholders, owners, Boards of Directors and others want you to provide financial statements each month. The mistake too many CFOs make is they just provide some typical, boring financial statements. A monthly reporting package is an opportunity to establish confidence, credibility and trust with everyone who has a financial interest in the success of your company. Make sure you are using that opportunity every month to cement your relationship with them and demonstrate a professional approach to financial management. Here’s the recipe for turning boring financial statements into real insight.
- Decide that accurate monthly financial statements are better than inaccurate ones. Don’t create monthly financials then rely on your CPA firm to make all the necessary adjustments at year-end. That just means the monthly financial statements you provide during the year are wrong. Not only does that lead to poor decision making during the year, it can also kill your credibility and trust with anyone who sees those financials along the way. Here’s a fun way to look at it.
- Create a written capital expenditures plan. How much cash did your company use for capital expenditures last year? Do you have that number at your fingertips or do you have to go on a hunt to find it? Capital expenditures don’t show up as an expense when purchased. That’s why most business owners let cash leak out the backdoor. The smart approach is to have a written (one-page) capital expenditures plan for the coming year. Then evaluate actual cash outlays against the plan to make sure you are in control of this very important use of cash. Here is an example of how to create your capital expenditures plan.
- Put yourself in the shoes of an investor or lender. Lenders and investors think a little different about your business than you do. They think in terms of risk and return on investment. They evaluate the CEO and the CFO based on whether they trust what they say and the information they provide them every month about the business. Make sure you are fostering a close relationship with them so you have some “goodwill” if times get tough or you need their help in the future. Here’s a picture of how investors and lenders look at your business.
I know it’s difficult to think strategically and big-picture when you are down in the weeds of your day-to-day work. But the end of the year provides you a golden opportunity to rise above the day-to-day and open the door to some exciting new improvements that only need one thing to become reality… your decision to make it happen. So take a few minutes to put on your “big picture” hat. Put each bullet point on your calendar. Then focus on one topic each month. It could change the way you manage the financial side of your business forever… and for the better.