Hacking the overgrowth and pruning back to just what you need (or what generates the most revenue) are the first two steps in putting your business on the path to profitability. Now that you’ve gotten a handle on your human resources and financial resources (and pruned away the liabilities), it’s time to organize those assets.
In Part 1, we discussed updating your human resource materials, click here to read it if you missed it. In Part 2 today, we’re discussing updating your financials.
Step 2: Update your financials
By now you will have evaluated your financials going into 2019, and taken steps to trim expenses and collect accounts receivable (as advised in prior posts). It’s time to organize your financial picture and plan out the rest of the year.
This process starts with creating an annual operating budget of income and expenses. This valuable road map details the business’s expenses against the revenue it generates. Armed with the information garnered from your look-back on the prior year and with desired ratios in mind, write out a realistic, achievable budget. Include everything as a line item based on what you learned about your business over the last two months—in other words, a data-based budget based on prior sales and expense areas.
Depending on the type of business, there will be certain controllable or fixed costs and variable expenses. You may also require a production budget if you make products and carry inventory. Make sure to factor in one-time expenditures you are planning in the year (new computers, furnishings, equipment).
Your budget is not one and done; update your financials on a regular basis (weekly, monthly and quarterly) to assess where you need to make adjustments in expenses if you’re not meeting revenue goals. On the flip side, if cash has started flowing into the business and the bank account is growing healthier, make sure to hold some cash in reserve for unanticipated expenses or seasonal fluctuations.
A CFO can help you get the necessary bird’s eye view of the entire business as you develop a budget that will provide an important guide each month and each quarter. As you pull your monthly financial statements, the budget also serves as adjustable road map if your goals are not being met. By working the budget throughout each facet of your business, you’re working towards generating more profits.
Step 3: Celebrate!
You are taking all the steps, methodically, to reveal your business’s potential for sustainability and for growth. Celebrate what you’re doing today and where you’re taking your business tomorrow.
Step 4: Engage an outsourced CFO to help you assess and organize your company’s financial resources, provide business guidance, and spotlight areas of your operation that will generate profits. Contact CFO Your Way at (973) 897-0650 or cheryl@cfoyourway.com to find out more.
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