Archive for Accounting for small businesses
As Curly says in City Slickers “you just need to know one thing..”
Posted by: | CommentsIf you are in business or looking to start a small business there are a million details, some important and some not so important. In my dealings with over 1,000 small business owners I have determined that there is a “1 Thing!”.
The sad part is that more than 95% of the small business owners I work with have never looked very closely at the “1 Thing!” . Not only have they not looked at it closely, they have no idea how to put together the information so they can look at it.
What’s the leading cause of business failure? Not low sales, not low prices, not bad employees, not taxes, not regulations. The leading cause of business failure? The business owner runs out of money before they have a chance to succeed.
What’s the 1 Thing……….Cash Flow.
Very few small business owners even know the difference between cash flow and profit. There is a huge difference. Many, many profitable businesses go bankrupt every year because they run out of cash. They ran out of cash, they didn’t run out of profits!
I talk to many small business owners who are shutting down their business because they ran out of money. I asked them the obvious question.. “when you went into business you had a plan, what went wrong with the plan?”
The most frequent answer, “I spent all of my time figuring out what the right product/service was and not much time figuring out what I needed to get that to market.”
Cash flow is easy to summarize. What cash comes in when?…What cash goes out when? If $10,000 in cash goes out on February 1 and you get $12,000 cash in on March 15th you have NEGATIVE cash flow of $10,000 for 45 days even though you have a $2,000 profit ($12,000 in – $10,000 out).
Know your cash flow! I can assure you that if you take care of your cash flow the profits will likely take care of themselves.
Before you get into business……
Posted by: | CommentsIf you are thinking about going into a small business make sure you get things in order.
Step 1:
Have a plan for getting out of business. This is important because it will effect how you run the business.
If your plan to get out of business is “shut it down and declare bankruptcy”, your day-to-day decision process will be totally different than if your get out of business plan is “create a business worth $1,000,000… sell it and go to the beach.”
If you have a business partner you need a plan for you and your partner to get a divorce without killing your business. How does that work? Get a buy/sell agreement that is sensible, logical, definable and finance-able. How will you buy out your partner (or how will he buy you out)? Get a small business loan? Write a check? Give him a note? What if you or your partner gets hit by a truck? Do you want the spouse or kids as a partner? Have a plan even though you hope you don’t need it.
Step 2:
Make certain you’ve got Step 1 done very well.
Every business owner leaves their business at some point, every single one. Think about the end of the game before the end game is here.