When first starting your business, it’s reasonably easy to understand how much money is coming in and going out, and the ways to increase business are obvious.
As your business grows, so do expenses and the number of tasks you have to take on and oversee as a business owner. Even as you delegate jobs and hire new employees to help grow your business, it’s easy to get caught up in the daily operations of your business. The risk in doing this is losing sight of your long-term goals to build wealth for you and your family.
Ignoring your long-term goals and the impact each day has on your business’ future, and your own, results in missing opportunities and can have you missing out on millions of dollars in profit.
Here are 6 wealth building tips that will help you make sure you’re making the most of every day of hard work you are putting into your business.
– Be Intentional About Exactly What You Want to Build, How, and Why
As mentioned, ignoring your goals or not creating any is a sure way to waste resources and miss opportunities.
Think of a college student who never selects a major and just signs up for random classes. Even if he or she does very well in each class, they are unlikely to accomplish anything of note because they haven’t set any specific goals and are not on a path toward those goals.
A student who wants to get a degree in marketing probably isn’t going to spend two semesters taking astronomy classes.
If you know that you want to sell your business in ten years, you need to make sure you’re running lean and as profitable as possible to increase the value to a potential buyer.
How you operate your business needs to be in line with your goals. Know what you want to achieve, and then take intentional steps to reach those goals.
– Stop Tracking Vanity Metrics
Focus is essential in order to achieve success as an entrepreneur.
There’s a reason so few professional athletes can succeed at multiple sports, and so few entrepreneurs can run two large companies at once. Optimizing your time and focus can have a ripple effect on your business. Instead of spreading your focus too thin by looking at every report and detail in your financials, give up on tracking vanity metrics.
By vanity metrics, I’m referring to numbers and reports that businesses have long relied on to judge their growth and wealth. For example, in our founder Frank Lunn’s previous business, they were bringing in $20 million in annual revenue. This was all just for show, as the actual business wasn’t nearly as profitable and a lot of their energy went into increasing this number, instead of focusing on what would build his wealth and the profitability of the business – profit!
Keep track of the metrics that get you closer to achieving the goals you care about.
– Optimize Your Profit Margin
A metric that is important to every business, regardless of their goals (unless their goal is to lose money), is profit margin. Profit margin is the amount of revenue leftover from sales after accounting for costs.
For example, if you buy bike frames for $100 each, spend $100 in additional parts to complete them and then sell for $1,000, your profit margin is $800 (not taking into account other expenses or pay, which should be included in profit margin).
Imagine you sell 1,000 of these a year. Let’s say you can reduce your variable costs by buying all of the frames in bulk and they are now $85 instead of $100. Your profit margin is now $815, and for the year, you’ll make an additional $15,000 in profit.
By just making a small change in your profit margin, it can make a huge difference in your profitability.
For more on profit margin, check out our video tutorial: Increasing Business Profits Using Gross Margins: Accounting Clarity for Entrepreneurs Series.
– Plan Out Bite-Sized Chunks
Bill Gates didn’t get a computer into every household in a year. Even if you are trying to build a massive empire that will change the world, you need to plan short-term goals, which can act as steps towards what you want to accomplish in the long-term.
If you want to build a $100M business, you have to get to $1M first, and then $10M, $50M, etc. Start with planning out how to get to your short-term goals and pursue them relentlessly.
– Master Your Cash Flow
The definition of failure in business is running out of cash! Mastering your cash flow will dictate how and when you can use your cash for business growth.
In April of 2014, we did a special webinar with author of Never Run Out of Cash, Phillip Campbell. Watch the full webinar, How to Understand Cash Flow, here!
– Have an Accurate and Flexible Financial System in Place
Your financial reports, profit margins, cash flow, and important business metrics all rely on one thing – having an accurate and flexible financial and accounting system in place. If your bookkeeping and accounting isn’t setup properly, anything that comes out of it could be unreliable and put your business at risk.
Kahuna Accounting works with growth-minded businesses and entrepreneurs to setup and manage their financial system. We’d like to welcome you to read our free guide on cleaning up your accounting mess. Access it here!