The New Year is upon us. What a gift! If I am going to make all my dreams come true in this lifetime, I better get more done with less time and effort. I’m too old to waste time. So, I’m focusing on small changes that will lead to breakthrough results. Money helps. Money buys options. So, let’s consider easy ways to create more money. Here are two small changes that create big results in cash and profits for your small business!
Add Cash Flow Projections to Your Financial Reporting
Since 1990, I have reviewed my Balance Sheet and P&L on a weekly basis. The Balance Sheet tells you what you have, what you owe and what you own. The Profit and Loss shows Sales minus Expenses and what’s left over, or not. I compare actual vs. budgeted, in other words, what I have vs. what I want. I adjust my behavior, I engage the team, and we have fun making more money. Once a month, we “close” the accounting and make sure the T’s are crossed and the I’s dotted, using a Month End procedures checklist. This approach has made me a wealthy woman.
Recently, a CPA friend reintroduced me to the Cash Flow report. A Statement of Cash Flow is formally the third in the Financial Reporting Triumvirate that everyone should use to run their business. Up until now, I haven’t imposed it on my clients. I’m changing that this year!
Have you ever wondered, “My P&L shows I have a Profit but that number doesn’t match what I show for Cash on the Balance Sheet. What’s up with that?” The Cash Flow report shows you, quite literally, where the cash went. Here’s a nifty freebie I found online…
Knowing where the cash goes is helpful. You can take it a step further by budgeting, and predicting, what your cash inflow and outgo will be. This is a very interesting exercise if you have regular transactions that involve accounts that are on the Balance Sheet and not the P&L. For example:
- You have a significant amount of debt. Debt can dry up your cash. When you repay the principal on your debt, that repayment doesn’t show up as an expense on the P&L. The interest portion does, but not the principal portion.
- You have a lot of Accounts Receivable. If your business requires a bit of lag between the sale and the payment, you know cash flow can get tight.
- You have made, or are planning to make, some big asset purchases. If you write a check for a piece of equipment, that purchase will show up as an asset, not an expense. Cash is affected, but the transaction doesn’t show up on the P&L.
Download and play around with the Cash Flow spreadsheet. You could also find the Cash Flow Statement in QuickBooks or whatever you are using for your accounting software. Discover where the cash is going. And project what cash will look like given your plans for 2014. Profits are terrific; cash is KING. Profits collected in cash will fix just about any financial challenge. IF, the activity on the Balance Sheet is not sinking the ship. Explore cash management and add it to your month end procedures checklist. This can have a huge impact on your business (and stress levels!)
Raise Your Prices, a Little or a LOT
For the greatest “Small Change for Big Result” you can’t top a price increase. Mathematically, theoretically, if you raise prices and all other expenses stay the same, every dollar of that price increase flows to profit. For example, let’s say you had a breakeven year for 2013, zero profit. If you raise your prices by 20% and all other variables stay the same, those additional sales dollars will increase your bottom line by 20 percent. You could do that. You could raise your prices 10, or 20 or even 30 percent.
What if you doubled or tripled your prices? You could spend more on things that will help you do a better job for your customers. Get more training. Nicer tools and vehicles. Better benefits packages to attract the best employees. Explore what a price increase would do for you as you update your budget for 2014.
Think if you raise your prices, you’ll scare off your customers? If you are going to charge more, then BE more. Commit to taking a sales skills training class so that you can learn how to communicate how you are different and better when it comes to solving your customers’ problems. And raise your standards. Be worth the price increase. I tell my contractor clients that if they show up clean, sober, on time, dressed right and using a checklist, they could raise their prices 500% and still get to, “Yes, let’s get started.”
Two Small Changes that can have Big Results in 2014:
1. Watch and plan for Cash.
2. Raise prices and create more Profits.
About the author: Ellen Rohr – The Plumber’s Wife turned Business Makeover Expert – helps you find freedom in your own profitable business. Financial clean-up, and powerful business planning. Meet Ellen at www.ellenrohr.com.
“Falling Money $100 Bills” courtesy of David Castillo Dominici / www.freedigitalphotos.net
Andrea Feinberg says
Excellent article on a critical topic; thank you!