Controlling Your Financials
While most small business owners are incredibly savvy within their industry, many struggle with the business end of things – specifically in maintaining their budgets. Maintaining your budget can feel like a constant hurdle to overcome, but it does not have to be as daunting a task as it is right now.
First, we must identify the most significant struggles that small business owners consistently experience in maintaining financial success. The good news is, most of these financial struggles are ones that owners can seize control of to turn their problems into profits.
Improper Pricing of Products and Services
Proper pricing of your products and services is a critical factor in your business’ ability to yield a consistent profit. According to 31-year industry expert, Tom Grandy, President of Grandy Associates in Owensboro, KY, one of the biggest mistakes small business owners make is to price their products and services based on what competitors are charging. “The number one thing you need to do before you start your business, and at any point in your business, is to find out what you need to charge per hour. Do not go by what the next guy is charging per hour – find out what you, yourself, need to charge to be successful.”
What determines your price point is primarily based on what is workable within your budget. Without a good handle on your budget, you cannot know how to accurately price your products and services to meet the financial needs of your business.
Grandy stresses that what your competitors are doing has “no effect on the costs you incur with your overhead, materials, labor, etc.” You may be in the same industry, but you each run different businesses, have different goals, and incur different expenses as a result. It’s important to focus within to learn where to make enhancements or cut costs in order to bolster your bottom line, or to at least maintain stability.
Creating and maintaining a budget that accommodates shifts in productivity will inform and guide you toward what you need to do to offset seasonal decreases in revenue. Ken Goodrich, President of Goettl Air Conditioning in Tempe, AZ, states that “most business owners fail at sticking with budgets because they create the budget, stick it in a desk drawer, and never look at it again.” He advocates for keeping a simple budget and that it’s important to ensure that everyone you employ works toward monthly goals. “A budget is a road map that needs to be incorporated into your daily processes…Everyone in the company should know what the monthly sales budget/goal is, and have some sort of daily update as to the progress of that goal. It could be as simple as updating a white board with the monthly goal, progress to date, and how much left to complete the goal.”
Goodrich emphasizes that “sticking to a budget requires discipline.” It may be easier for some to be disciplined if they follow his guidance to simplify their budget. “My first budget was a 3-year plan of revenue and profits. I looked at it every day until I accomplished it. After that, I started using various budget tools from industry resources, but I have always kept it simple.”
You need to know where you financially stand at all times so that you can make necessary adjustments as they need to be made. Ray Isaac, President of Isaac Heating & Air Conditioning, stresses that any business should have the goal to “maximize revenue, minimize labor costs, and minimize expenditures” and that if you can get a good handle on these three areas, you’re likely in good standing. Many times, expenses can be structured to accommodate the revenue available. There are numerous things you can do, such as hire seasonal help, save a percentage of your revenue during productive seasons to cover costs during off-seasons, negotiate with vendors and suppliers, and mark down inventories during off-seasons to gain some profit and reduce carrying costs.
It’s worth noting, that being well informed of what your numbers look like daily, will make your life much easier when negotiating with vendors. The knowledge you have of your budget will refine the way you approach your negotiation. This makes working with you worth it for the vendor since he knows that he’s working with someone who knows his money and will likely have continued business for him.
Taking on Too Much
Another significant issue that Grandy has seen throughout his career, is that “many times, when businesses see success and get larger, they start doing multiple things in the hopes of expanding their revenue streams,” instead of maintaining a specialty in one niche area. Taking on multiple niches that do not fit seamlessly under the umbrella of your primary business can likely demand multiple budgets, as each niche has its own pulse. As a result, you’re multiplying the likelihood of having to tackle the same issues in those niches that you have to contend with in your primary business.
Taking on too much can not only place incredible strains upon your ability to budget properly, but can also have negative long-term impacts upon your brand’s authority. According to Grandy, an issue with casting your net too wide is that your consumers “will begin to see you as more of a ‘jack of all’ versus a subject matter expert” to be sought after. People trust subject matter experts, and will sooner give them their business than they will someone they perceive to have a more general knowledge of their needs. The most successful businesses specialize in a specific niche and place their focus on optimizing everything that niche needs to succeed.
Maintaining an Employee Mindset
Grandy regularly notices that “many small business owners work so hard for so many hours within their business, that they neglect the business end of things altogether”. Everyone respects a boss who is willing to get his hands dirty once in a while, as it’s a mark of a great leader. But great leaders not only lead by example, they make sure that everything that impacts the business itself is squared away and on a continued path of success. If you have employees, they depend upon your ability to make this happen. Grandy recommends approaching your business “in every way from the mindset of an owner;” as opposed to the employee you once were when you were inspired to start your business.
Isaac agrees that owners “have to understand the business of business. Get yourself working on the business and not in the business.” Many small business owners find it difficult to pull away from the work they loved when they were a technician, because they not only loved it, they excelled at it. It’s important to realize, though, that owners need to excel at owning and operating the business, and leave the trade duties in the capable hands of employees. Their job is to make you successful; your job is to make sure that success translates to profits.
Lack of Business Training
Arguably the most significant issue among struggling business owners is a lack of training. Anyone who specializes in anything (regardless of industry) has received the proper training required to at least start out on the path to success. The most successful people in any industry continue to receive training throughout their career, are in a constant state of learning, and ensure that they are fully knowledgeable of anything new happening in their field. This is what makes subject matter experts, experts.
Many small businesses end up failing because of one or all of the aforementioned issues. However, all of these issues can be successfully handled when owners are properly trained in business management. You wouldn’t wake up one day and presume to be able to just walk into a classroom and start teaching because you know everything there is to know about science. You would need to receive the proper training to be eligible to do so, and to be effective. It makes sense.
It’s a consistent truth that successful business owners have the discipline necessary to continually seek the training they need to stay on top of financial success. They know that being disciplined with their budget directly affects their business strategy, so they review it frequently and many times enlist the assistance of finance experts. Isaac states that, if you can, “get a good CFO, Comptroller, or Bookkeeper” as these people will help “keep you brutally aware of your current situation and will hold you accountable.” He recommends, at the very least, to “find the resources that are out there, and there are many. Carrier had a great business plan and it’s out there for people.” He also recommends reading Traction: Get a Grip on Your Business, by Gino Wickman and Scaling Up: How a Few Companies Make it…and Why the Rest Don’t, by Verne Harnish. He maintains that “most of what you need to know is in those books.”
Proper training will not only inform you as to how to make accurate decisions, but will also mold the necessary mindset you need to have in running a business. With so many variables that can each determine the success or failure of small businesses, taking the initiative to be more knowledgeable about what it takes to become successful through readily available training and resources should not be one of them.
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Posted In: Management, Money
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