Business growth. Business financials. These are two totally unrelated business disciplines right? One is for the driven sales and marketing side of the team and the other is the analytical, data-minded side that’s keeping everyone between the lines.
This way of thinking is completely off. It misses the point of the financial side of running a business – which when done properly provides a roadmap for growth and achieving goals.
Most businesses want to grow. They want to build on what they have, make a greater impact and have excess cash flowing through their business so they can distribute it out in a variety of directions based on the specific goals of the owner.
But for many, growth can be a trap. Or it can be elusive.
Do you ever feel like your business is on a hamster wheel and no matter how much things grow, nothing ever changes financially for you or the business?
That’s because most business owners don’t know the financial metrics behind growth and cash flow. And the truth is that the answer for business growth can be found inside your numbers.
The most successful business owners know how to think like a CFO and predict their growth and use additional revenue to fund what they really want.
You don’t have to be a financial expert, but you have to know what to look for.
We are doing a 1-hour webinar every week on Tuesday, Wednesday, and Thursday with a deep dive into how to connect your business’ growth with your financials. You can sign up here.
But even if you can’t make the webinar, here are two simple financial rules for growing a business.
Know where the cash is flowing
For most businesses, growth comes at a cost. If you are in a service industry, the more you grow, the most you’ll need people to support the growth.
That seems fine, except sometimes you can hire to support growth and forget to calculate that it will take some time for the new employee to ramp up, and then if collecting revenue is lagging behind, you can find yourself in a cash crunch.
The best way to avoid this is to grow steadily and fill some cash reserves before hiring so you can be ahead of any cash challenges.
To do this, you need to know where the cash is going in your business. Are you able to consistently generate a profit? If you created more revenue, could you put some cash away, or does it go right back out?
Knowing where the cash is going in and out of the business, is the first step in driving your business’ growth.
Stay ahead of the growth with a simple financial forecast
The biggest financial problem for most business owners is they look backward, not forward. Only looking backward makes it impossible to grow.
Think about this scenario. You go through a month in your business. Your team is working hard, you are making progress. The month wraps up.
By the 10th of the next month you get your financial reports.
By the 12th you actually look at the reports. You have some questions and go back and forth with your bookkeeper.
By the 20th, you finally understand what went right and what went wrong for the month. But it’s the 20th of the month! You’ve already let another month go by before you can make an adjustment, and soon you’ll be repeating the cycle all over again.
There is no control in that scenario.
The most successful businesses create a basic forecast based on their goals looking at least 6 months ahead.
You should be predicting your sales growth and expenses, and then comparing your budgeted totals to actuals as they come.
Then you can make adjustments in real time.
Free Webinar: Predict Your Business Growth
We are going much deeper on this topic on our upcoming webinar and we’ll show you exactly how to predict profits in your business.
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