Article published by the Business Women Australia on 14 March 2017. (See link below)
While entrepreneurs are often armed with strong ideas, passion and skills, a lack of financial know- can compromise their vision and be the cause of business failure. As a business owner the buck stops with you. Have you got your finger on the financial pulse of your business? We asked Tracey Loubser, the Cashflow Queen and Sapphire member of BWA, for her two biggest tips to help businesses be profitable and keep on top of cash flow.
Tracey stresses that financial clarify gives you vital insight. We couldn’t agree more!
Tip #1: Categorise your financial “buckets”
Tracey suggests that you separate your business into distinct categories.
Define your types of “financial buckets” and work out each one’s inflow and outflow.
Separating them shows how much is going into and out of each bucket.
It also helps as a reminder that the Admin Costs bucket needs to be supported by inflow (profits) from the other buckets.
For example in a consultant / trainer type business:
- How much does the Consulting bucket make after paying:
- related staff wages
- related software costs
- training costs to keep up to date with latest trends
- related Marketing / Advertising costs?
- How much does the Training bucket earn after paying:
- Venue / Catering costs
- Printing of workbook costs
- Wages (or part of wages) related to delivery & follow up time
- advertising, flyers/ banners or other related costs?
- What does it cost to run the Admin side of the business:
- support staff
- insurances
- bookkeeping costs and the like?
If you identify and track an area’s excessive outflow you can get on top of that expense.
Timely action to re-balance your buckets will help avoid future pain.
Tip#2: Identify unprofitable “buckets”
Tracey stresses that being able to pick up on an unprofitable or ‘leaky bucket’ is more serious than overspending, as it attracts its own related bank outflows, so the effect on the bank account can be disastrous.
Take the three steps Tracey suggests to see how much money each distinct area of your business is making and how much it actually needs.
- Identify the average monthly amount of profit made in each ‘bucket” category.
- Identify how much money is needed to support the Admin side of your business – support staff, insurances, bookkeeping, rent etc. (Remember to account for your own wage)
- Does the money made from each bucket cover this? If not, exactly what is the shortfall?
Be aware of exactly what net dollar value is needed to break even. To ensure your desired profit, you will need to consider how much to boost that figure.
If the situation looks unsustainable, then either cut costs, or find a way to ensure you consistently earn that revenue. Get on top of your financial figures – make sure they are clearly visible – that way, you can determine your flexibility for quoting and pricing, and avoid future cash flow crises!
Tracey’s unique “Looking Back Review” program has identified “leaky buckets” for many of her clients. This program empowers her clients to take quick action and cut costs, increases prices, and sometimes even dump unprofitable “product/service” offerings – which results in higher profit and free’s up staff / business owner time!!!
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