Put profits first - always
Five tips to maintain financial control of your
business and keep the cash flowing:
George Cloutier
If you're reading this, you're probably already running your own
small or midsized business. Maybe you're doing OK, but your competitors
are doing better and you're wondering if you could be doing more to
increase sales. Perhaps you're like hundreds of my clients who have
suddenly found the tide has turned and the ship of easy profits has long
sailed.
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Profits
aren’t everything, they’re the only thing |
You can only blame so much on the economy. If you're struggling, you
can't turn a profit no matter how hard you try, or if you're slicing
your salary or facing foreclosure, it's because you're doing something
wrong.
You have to ask yourself: "Why am I in business? What's my goal?"
Your answer should be to make profits. Why go into business if not to
make as much profit as you possibly can? But you must have controls and
processes in place-otherwise you become a slave to meeting the payroll
and paying your vendors, and you end up struggling to keep the business
alive.
There is a way to take control: Put profits first. Always! Here are
some tips on doing just that-and what to do if all else fails:
* Profits aren't everything, they're the only thing. It's time for an
attitude adjustment. Decide now to make the total commitment to run over
anyone or anything that gets in the way of your company's paramount need
for profits. It's not about sales. It's not about how many employees you
have. It's not even about your balance sheet.
It's all about the cash. Collect what's owed, do a P and L statement
weekly and cut costs viciously whenever necessary. Run your business
strictly by the numbers.
* Forget sweat equity. Too many business owners believe that when
they're building a business they shouldn't pay themselves a salary.
Venture capitalists call this sweat equity. I call it working for
nothing and being a fool. The inability to pay yourself a full salary is
a red flag that there is something wrong with your business. You're the
one who takes on all the risk, so take better care of yourself. It will
give you the shot in the arm you need to make you a stronger leader.
Show who's the boss by paying yourself like one. Money talks!
* Live and die by a real plan. Stop fibbing that you have a real
financial and operating plan. If you do, it's probably gathering dust in
the bottom of a drawer. Instead set forth your profit goals and use
iron-clad fiscal discipline to enforce them.
Budget using a profits first plan. Set aside what you can reasonably
expect to make in the year, and adjust your expenses daily, weekly and
monthly to meet that profit goal. Clear up the muddy math and expose the
profit leaks. Hold employees accountable for staying within budget. Cut
costs viciously to earn in good times and bad.
* You are not in business to pay your vendors. Managing a company's
outgoing and incoming cash flow is daily hand-to-hand combat. Every day
is a fight to cover costs. So why not use every weapon in your arsenal?
Use your vendors as a source of reliable cash-never pay them on time!
Stall, in a polite and orderly manner, and consciously expand your
payables. Think of every dollar you can defer paying as an interest-free
loan. Use and abuse your vendors. Be aggressive. The same goes for rent
payments to your landlord. They'll get over it, as long as they know
they'll get paid eventually.
* When filing for bankruptcy is your best option, do it early! Be
warned. This is a remedy that takes a strong stomach. It's the toughest
decision you'll ever have to make as a business owner. But if it's a
choice between the perceived shame and giving your business a fighting
chance, suck it up and do it, sooner rather than later.
It's a fabulous financial and legal maneuver that will free you of 90
percent of debt, as well as any other contractual commitments.
And if you make this move before your assets and cash flow run out
you will have a much better chance of having a successful Chapter 11
Reorganization.
The law exists for a good reason: it's the only legitimate way to
defeat a tsunami of debt. So if you have to, make use of it.
Making a real profit takes unwavering dedication to your business.
But if entrepreneurship is in your blood, why not work for the most that
you can get? It all boils down to how hard you work, and how smart you
work in good times and in bad. entrepreneur.com
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