It’s not really a question you hear to often. People generally ask if your business is making any money. Your success is then determined by how much money your business has made. That question in and of itself is a trick question because most small business owners only use two factors when calculating how much money their business has made, income and the expenses. The truth is while knowing your income to expenses ratio is great, what you really want to know is how healthy is your business.
So what does a financially healthy business look like? A healthy business means that you as the owner are being compensated for the hard work you put in day in and out for your business. It means that when the tax man cometh you’re prepared rather than sweating bullets. It means that your business is not being eaten alive by overhead.
I’ll be honest with you, I’ve been in business for myself for almost three years and while something in my gut told me there was more to business finance than waiting until all of the expenses were paid to determine what I would make for the month I didn’t know what that was. Traditional accounting has taught us that Sales- Expenses = Owner’s Pay. There is really nothing intentionally about this method. You put yourself last which often means that you are left with little or nothing.
I’ll let you in a little secret, I am an avid reader. I love books. I love to learn and for the past 6 months I have been hooked on audio books. I look forward to receiving my free book credit at the first of every month. Last month I used my credit to purchase Profit First by Mike Michalowicz. Let me just tell you, the book was kind of life changing. You may think that I am being dramatic but I recommend that as soon as you get the opportunity purchase the book or audio book for yourself.
Profit First sets the traditional accounting method on its head by helping business owners become intentional about making money. Its formula Sales – Profit = Expenses ensures that you are not only being compensated for your hard work now but that on a quarterly basis you are rewarded with a bonus. The book discusses putting profit first but many of us have never made a profit distribution. Ever. But what if I can’t pay my bills at the end of the month? Mike created a very simply method of ensuring that not only are you making money, your business is too. The truth is that if you are executing the formula and struggling then the reality is your business as it is is not working.
Revisit your marketing plan(and execution), determine if the people you are currently serving are your ideal client, ask yourself if all of your expenses are necessary. It may be time to address of these issues and relaunch your business accordingly.
So I ask you, how healthy is your business?
If you business is ready for a relaunch contact our office to inquire about our 30 Days ‘Til Launch program.
~LaConya “Connie” Murray
The Small Business Attorney
