Is Your Business Really Making Money For You?
Are you a more hands-on type of person who really doesn't like paperwork and all of those numbers? You may have set up your own business so you can reap the rewards of your labours, but you've still got to focus on administration and, crucially, develop a budgetary plan. As you take a deep breath and sit down to work on your projections, where do you start?
Paying Yourself First
Many people set up their business to make money out of their passion or monetise a hobby of some kind. It's important to change the mindset at this stage, however, especially when it comes to making money. You may well love what you do, but you've still got to make sure that you are paid for it, and when it comes to setting a budget, your own salary should be one of the first things to look at.
The legendary investor Warren Buffett insists that you should always pay yourself first because it's very easy to become reactionary and forget to pay yourself anything at all. This is not to say that you should ignore those all-important costs and expenditures, but you've got to be realistic and remember why you set up the business in the first place.
Time for Some Trimming
Be very critical about all your operating expenses and determine whether you can reduce or eliminate some of them altogether. Little changes will add up over time and will eventually have a significant impact on your business. The same goes for cost of sales. These are sometimes known as direct expenses and are linked to money that you incur in order to provide your product. Attention here can have the most dramatic effect on your bottom line, even though it'll be somewhat more difficult to shave these costs initially.
Working out Your Net Profit First
In an ideal world, you should calculate how much net profit you want to make at the end of the year and run all your calculations backward from there. Eventually, this will give you your target turnover figure and then you can determine whether your marketing efforts are sufficient to reach that goal. Most people do this the other way around and may be somewhat disappointed if they don't make any profit at all. Once again, remember that net profit should only be determined after you have paid yourself and not before.
Who Can Do This?
Of course, you may hate this type of paperwork and wish you could get somebody else to do it. Luckily, you can reach out to an accountant and he or she can suggest some cost-saving measures that you may not have thought about. They may be able to offer other accounting services to help you out as well.