Simple Numbers, Straight Talk, Big Profits!
An excellent book by Greg Crabtree. He provides clear and simply insights for any small business just starting out. I wanted to summarize the book for you but honestly it is a easy read and I would recommend to any small business owner that is struggling with the dreaded “financials”. Us “accountant types” sometimes get a little too technical so this book is a perfect reminder to us that sometimes we need to bring it right back to what matters.
There are 4 keys and they don’t necessarily exist in isolation.
Separate your salary from the ownership of the organization. You are likely both shareholder and employee. You might even be doing multiple roles. Understand this and when possible pay your employee self properly. You might need to put in sweat equity to start. But when you can try to pay your employee self back.
When you start out you are going to likely being doing multiple part-time roles, you might be doing a lot to get to a working wage for yourself, The book gives you practical suggestion on transitioning from this to full time CEO from a financial perspective.
Determine an acceptable profit margin before taxes for your industry and develop your budget around that. Do not compromise your profitability by running non business expenses through your business. Shareholder you needs to be clear on the value of the business. Taxes are a necessary evil and remember that it is a double edged sword - if your paying taxes that means you are profitable.
Understand that labour productivity is key for just about any industry. Review your fixed costs and determine your labour/salary cap for the current level of sales. Gross profit per labour dollar is a critical metric.
Understand the Forces of Cashflow. Now that you are making a profit - now what. You will need to pay your taxes, pay down your debt if you have any, ensure you have your core capital target saved, then and only then do you have funds for distributions. Having a clear eye on your cash is critical. Ensure you know how much cash you have on hand in your business, know what came in and went out of the bank on any given day. You need to review weekly a simple cash flow forecast to manage the upcoming week.
This is a very high level overview, the book covers so much more. A great small business coach or your accountant should be able to help you build out all these systems. Here is to a future of profits for your small business.