Each week as Smallbizlady, I conduct interviews with small business experts on my weekly Twitter talk show #SmallBizChat. This is excerpted from my #SmallBizChat interview with @DorethiaConner Dorethia Conner, MBA, is president of Conner Coaching. Dorethia provides results-oriented personal finance and business coaching services to small business owners . Known for her no nonsense approach and charismatic personality, Dorethia is passionate about helping entrepreneurs successfully manage their money and increase their bottom line. For more information on her coaching services www.connercoaching.com.
Smallbizlady: Why is it important for small business owners to develop a financial game plan?
Dorethia Conner: Without a plan you won’t know the potential for your business. It’s important that you reach your growth goals and know where you stand financially. Every business should have a revenue goal to reach each year that is more than the previous year, along with a strategic plan outlining how they will reach that number.
Smallbizlady: What is the first step to creating a financial game plan?
Dorethia Conner: The first step is to evaluate the previous year’s finances and initiatives. You want to look at your marketing, operating processes and expenses. For example, what marketing campaigns worked? How much did they cost and what % of sales can be attributed to each campaign? Does your business flow smoothly? Is there a more efficient way to run it by adding technology or processes? Did you have to hire new staff or contractors and how did that help your bottom line? Is it working? Did you invest in machinery, buildings or other expenses, did this increase or decrease your bottom line? What is the expected return on investment for the next year, 3 years, etc.? Essentially, you want to fairly evaluate where you are spending your money and eliminate what isn’t generating income in a reasonable amount of time.
Smallbizlady: What would a strategy for the current year consist of?
Dorethia Conner: It will involve: 1. Setting your sales/revenue goals 2. Developing and implementing a marketing strategy to meet those goals 3. Having a plan in place for allocating the revenues that come in. After you’ve paid your monthly business expenses — including your salary, it’s necessary to have a specific place for additional revenues
Smallbizlady: Is there an effective way to manage business banking?
Dorethia Conner: Number one is to keep personal and business banking separate. I know we’ve all heard this, but it never fails that a client comes in who is mixing the two. I also can’t stress enough the importance of good accounting software that links with your bank accounts. Online banking saves the day in that it allows you to pay your expenses, transfer money, etc. without leaving the office. Also, all transactions can be downloaded into the accounting software. This makes reconciling and record keeping must easier.
Smallbizlady: What is the best way to set up business bank accounts?
Dorethia Conner: Business Checking — General Monthly Expenses
Business Savings 1 – Allocate quarterly, annual, etc. business expenses ie. taxes, licenses, insurance, etc.Business Savings 2 —— Lean times — an emergency fund for your business
Business Savings 3 — Growth, new development, etc.
Smallbizlady: What are some strategies small business owners can use to scale back expenses?
Dorethia Conner: Re-evaluate office space, is it too big or too expensive, what alternatives do you have? Can you operate effectively in a cheaper space or allow employees to work from home? Do you need to warehouse your products or will using a fulfillment center help slash your overhead and other costs? Consider equipment as well, do you have gas guzzling trucks where more economical vans will serve the same purpose? This will not only save you money on gas, but maintenance as well. Are you paying for expensive monthly advertising that isn’t yielding any results?
Smallbizlady: What role does business debt play?
Dorethia Conner: Business debt can hinder your financial game plan, especially if you are overextended. Make sure you have a handle on what you owe and are current on payments. Develop a debt payoff plan. Here are a few action steps you can take:
- List all your business debts so you can know how much money you will need to pay it all off. Include the money you borrowed from your rich uncle. I tell my personal and business clients to attack their debt paying off the smallest amount to the largest. This gives them a sense of accomplishment.
- Develop an attack plan — what will you have to bring in financially to cover expenses and have extra to pay down your debt. Is there a contract or big deal you can go after?
- Determine what you are willing to do to make it happen, stick to your goals. What sacrifices are you willing to make in your personal and business life, to get out of debt?
Smallbizlady: A major issue is credit card debt, what options are available to pay them off?
Dorethia Conner: Stop using the business credit cards and begin to pay more than minimum payments to get the cards paid off. Begin using company cash only via your debit cards.
Smallbizlady: How do we negotiate with our creditors?
Dorethia Conner: Creditors will work with you especially if you’ve built a relationship with them. Let them know business has been slow or that you are simply rearranging your finances. Offer to pay more monthly in exchange for a lower interest rate. If you have a lump sum of money available, offer it in exchange for a lower payoff. You can also ask them to spread the payments over a longer period of time. If your credit card company will not work with you and you have a good payment history, you can roll the balances over to a card that will.
Smallbizlady: Is it wise for busy entrepreneurs to allow their accountant to handle all their finances and not worry about it?
Dorethia Conner: Only if you want to open yourself up to fraud. It’s not wise to give anyone carte blanche over your finances no matter how much you trust them. This is a common practice, only to result in a horror story later. In your business there has to be checks and balances, always be the watchful eye over your finances. If you give your accountant free reign – who will actually hold them ‘accountable’?
Smallbizlady: What can I do if finances are not my expertise?
Dorethia Conner: Although you may have an accountant and a bookkeeper, you still need to learn the basics of financial management as a business owner. You want to be able to understand budgeting, bookkeeping and interpreting your financial statements. There’s no need to panic if numbers drive you crazy, with one or two day-long classes covering the basics, you will have the tools you need. It’s also a good idea to have your accountant explain the rationale behind their recommendations — don’t simply agree to every suggestion made.
Smallbizlady: How do you determine the amount to re-invest back into the business?
Dorethia Conner: You will make this determination based on your budgeted goals and financial forecasts set for the year. Is there new equipment you want to purchase, additional marketing strategies to invest in or do you need to add staff? Also consider the business savings and growth accounts we discussed earlier — are they fully funded? An important note here: do not make your salary so high, or spend extravagant amounts entertaining clients, etc. – that there is nothing left to grow the business. If you take all the money out of the business it will surely not last long.
Smallbizlady: How do we handle financial hiccups that come along in our business?
Dorethia Conner: It’s just like our GPS systems, you re-calibrate, which is another reason to have an accurate view of your finances. In business, there will undoubtedly be unexpected expenses that arise that you won’t be prepared for. That’s okay, now you just have to review your finances to include the hiccup and develop a new plan of action.
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