Monday, August 31, 2009

Crunch Those Numbers

It's hard to believe, but many small business owners don't really know where the numbers are at in their business.

For starters, few companies have regular professional business valuations, so they don't have a realistic idea what their firms would fetch on the open market.

But, even worse, a lot of entrepreneurs don't even have a handle on their income, expenses and asset value - let alone the more complicated quarterly reports that larger corporations have prepared by their financial teams.

At the very least, it’s crucial for entrepreneurs to know how much money is coming into and going out of their companies each month. It’s not okay to guess, wish or fudge on the numbers! If you don’t know where your company is financially at any given moment, it’s likely that your business will slip further and further into arrears – until it may be too late to turn things around.

Each month, with the help of your bookkeeper or accountant if you have one, sit down and calculate income and expenses. Be specific! For example, include fixed costs such as rent, insurance and payroll, as well as variable costs like advertising and marketing. On the income side, don’t include unpaid receivables until they are actually collected.

Don't forget to include calculations for taxes, overhead and consulting fees, if you have them.

You can purchase software for both cash flow statements and business plans from many commercial vendors, or get free templates from nonprofit agencies such as the U.S. Small Business Development Centers.

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