Money leaks, money leaks, money leaks, no business owner wants money draining out of their business, but many business owners do.
Have you ever logged into your bank account or looked at your balance sheet and thought, "Where is all of the company's money?!"
Do you feel like something seems totally off with your financials? You know the company is earning money, but you can't figure out why it seems like there's never enough to cover all the expenses and grow the business.
As a consulting firm owner, if you find yourself financially stressed and strapped for cash, it could be because you may have money leaks.
So, we will kick off Financial Fridays, talking about these cash-eating monsters and how to plug them!
People & Productivity:
If you hire the wrong people, they could waste time learning (or worse- not learning) but riding the clock.
And as the old saying goes, "Time is money"!
In addition, if you have managers that are spending time micro-managing instead of leading and doing their work, you are wasting money.
Everyone on your time should be held accountable for helping you grow your business.
I recommend first hiring slow and firing fast. Don't extend an employment opportunity because of a desperate need. Hire because of their skills and how they will fit into your company's culture.
Also, invest in fully training your team within the first 30 days. After that period, hold them accountable, support and validate them during weekly check-ins.
Spending money on meals in excess will only lead to a bigger waistline. Trust me, I know.
In addition, the meal expense often does not benefit you when it's time to file your taxes unless you can prove without any doubt that it was a business meal.
Not charging what you are worth is hurting your cash flow and bottom line.!
Don't make the critical mistake of undercharging in the hopes of securing new clients. You will find yourself stressed and resenting that client because you still have to deliver as if you received the total amount.
When pricing your services, be crystal clear on the direct cost and desired profit margin. Along with an operating %, include those amounts in your price.
Remember this – Every dollar not collected is a dollar you're unable to use to grow your business.
Subscription services and other services you've stopped using should not continue to take money out of your business.
I recommend that when you sign-up for a new service, assign a point person to evaluate the use and ROI of the service. And if you find that you are no longer using the services or they are not delivering on their promise, CUT IT!
If you have an excellent virtual CFO, like, Say Yes To Profits...(shameless plug), that would automatically be done for you.
Also, for annual subscription services, mark the renewal date in your calendar and set a reminder for 30 days before that date. When you receive the reminder, take the time to evaluate whether the service is worth renewing.
Ineffective marketing and advertising can cause more harm than good to your business.
Continuously plugging money into marketing strategies that are not yielding desired results is a waste of cash. When implementing a marketing strategy, map out your desired outcome and monitor the progress.
I also recommend allocating a small budget as a test. If you meet your goals during the trial period, you can invest more.
One way to track your progress is to ask each new client and lead how they found you. This one question will also enable you to find the free marketing channels for your business that you may not know.
Small Unknown Purchases:
Small purchases that may seem like they are really not affecting your business can add up over time.
I recommend asking yourself a few questions before spending money:
- How will this purchase help my business?
- Is there an immediate need for this item/service/product?
- Can my business operate effectively and efficiently without this purchase?
- What should the ROI be on this purchase?
If you are not aware of the tax-saving difference between an LLC, S Corporation, partnership, or sole proprietorship, you could be giving the IRS money, and you really don't need to.
The designation you select for your business determines your tax liabilities.
As a virtual CFO that provides tax preparation services, I recommend you identify the ordinary and necessary tax deductions that will enable you to reduce your taxable income.
Bottom Line: If you say YES to every purchase, lunch, supplies, service, product, etc., you are also saying NO to cash flow.
CEO Next Best Steps
I recommend creating and maintaining an annual money plan broken down into monthly periods and maintaining a 13-week cash flow forecast.
These two items will help you proactively manage your business by planning and projecting your cash position. They will also enable you to laser focus on your money habits and improve your cash flow cycle.
If you are ready to hire an accountant or would like to have a conversation with one of our virtual CFOs, click on the link!
Please leave your comments below.