5 Essential Money Questions Most Business Owners Can’t Answer
This article was originally published in February 2018.
Have you been in business longer than 15 minutes?
Good – you’ve asked yourself questions or been confused about your money.
How good are your answers? Better yet – how good are your questions?
The stakes are high when your livelihood is on the line.
How well can you answer these 5 questions to evaluate your business?
1. How profitable was my company last month?
By profitability, we *don’t* mean how much cash you have left in your bank account.
What was your true profit last month? If it wasn’t where you want it to be, what do you need to change?
A consistent P&L each month and an expertly managed balance sheet are your best friends here.
2. Where do we have money “falling between the couch cushions”?
What costs are you identifying each month that could decrease or go away? Where are my financials telling me to shore up my processes?
Who’s watching our expenses each month to minimize waste and ensure employees don’t spend unnecessarily?
Have someone watch for things each month like paying for an old service you thought you cancelled or a surprise increase in a vendor’s fees you didn’t know about.
3. What’s MY hourly rate as the owner?
Understanding your hourly rate as the owner is key to staying in your highest and best use (doing the things that only you can do), even in the midst of sometimes just having to get the job done.
Where do you lose money by doing things that someone else could do?
Your ability to stick to tasks worthy of your role and value defines whether you own a business or own your job.
As a business owner you should value your time above $100/hr and ruthlessly delegate any tasks that aren’t worth that rate.
4. What facts am I using today to improve this month?
You know your business better than anyone, so your intuition is valuable.
But are you trusting a one-point-in-time, subjective feeling or cold, hard facts to make decisions? A few percentage points can be the difference between profitability or going out of business. (Google this: “sunk cost fallacy.”)
Use your monthly financial statements to see what levers you can pull to increase sales or improve margins. You might be surprised how far a few tweaks can go.
5. What does the future look like?
Are long-term trends saying keep doing what you’re doing or take drastic steps towards change?
For small business owners, an unshakeable resolve is often why they’re successful. Given the sobering statistics on how many small businesses fail – that resolve could cut both ways: too stubborn to fail or too stubborn to make necessary adjustments
Wanna know the future? Have really good bookkeeping.How effectively could you answer these questions? If not as effective as you’d like, what’s your biggest obstacle?
