If You Want More Profit, Plan For It

By: Kc Truby Click author's name for more of his/her articles

Of equal importance, the business owner also needs to know how the business stands today, as in “who owes us money, to whom do we owe money, and how much money do we have” – receivables, payables, and cash in the bank. Perhaps of most importance, the business owner needs to have a sense of where the business is going in the next twelve months. Small business financial planning helps the business answer those three questions that keep you up at night – how much money am I going to need to run my business, how soon am I going to need it, and where is it going to come from?

Small business financial planning also helps you answer the question I get the most often when reviewing financial statements with my clients – “So, how do you think we did last month?” You see, the only people who can really decide how well a business is performing are the owners. The fact that a business had a $25,000 profit last fiscal period doesn’t really tell us anything. Now, if that business was expecting a $50,000 profit they didn’t do very well, but if they only expected a $15,000 profit they had a great result and things are looking pretty good.

Financial planning does not guarantee success; but I can assure you, successful businesses that last are implementing some sort of financial plan.

There are five main areas to business financial planning.

1. Monthly financial statements – there must be a reliable system in place to accurately measure what has happened financially in the business. Without a doubt the most efficient, most reliable, and least costly system of bookkeeping that will ensure the most accurate financial statements for your business is to outsource the entire bookkeeping task.

2. A 12-month profit plan – basically this is the budgeting process (yuck!), but I would rather view it as the process of planning our profits. Business owners need to take a hard look at expected sales, gross profit, and yes, expenses. Most business owners will actually learn a lot about their business by going through this process, and it will surely define their profit goals. Please understand that the owners must be involved in this process, but they do not need to be and probably should not be doing all the number crunching.

3. A 12-month cash flow plan – bottom line net profit does not always equate to positive cash flow. There are many things that can affect cash flow that are not necessarily reflected on the profit and loss statement. The idea here is that all small business owners need to be able to answer three questions:
a. How much cash will I need?
b. When will I need the cash?
c. Where will I get the cash?

4. A forecasted balance sheet – this helps identify whether or not the financial health of the business will be improving. Also, as a CPA, I know this is a necessary step to insure that nothing is being overlooked on the profit and cash flow plans.

5. Asset management programs – for most small businesses the two biggest assets on the books are accounts receivable and inventory. There must be systemized programs in place to ensure that these assets are not choking the cash flow plan.

Once the financial plan is in place, the process is not over. Its true value is in the monitoring of the plan, always comparing actual results to planned results and investigating the differences. Also, continue to adjust the plan as circumstances dictate and role the plan forward so you are always looking out at least 12 months. This is easily the most effective way to maintain or improve gross profit margins and reduce expenses.

Remember, there first must be a good bookkeeping and accounting system in place to accurately measure how the business has performed, and outsourcing the entire bookkeeping task is the most efficient, most reliable, and least costly means to accomplish that. With step one in place now the business plan can be developed to help owners have the power to react and keep the business headed in the desired direction.

If financial planning for your business seems like the wise choice, then please let us know, we can help.

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About The Author: Since 1987, KC Truby has taught 16,000 accountants how to find and sell more new business clients. KC has brought 250,000 businesses into a local accountant's office with his QuickBooks Made Easy seminars and tax marketing techniques. He was also named one of the "100 Most Influential People in the Accounting Industry", by Accounting Today magazine. For more tips visit www.cashcowaccounting.com”>www.cashcowaccountig.com.