Sometimes ‘fake it ‘till you make it’ goes too far…
Let’s study a typical example. He drives a sports car, has an office of glass and chrome, his social media photos are posed in front of yachts on numerous holidays and his friends and family gaze at him like the font of all knowledge. Yet when he’s out of the spotlight he buys discount baked beans and hides from his landlord because he hasn’t got two pennies to rub together.
Sadly this isn’t a rare example in business. You can have a business that seems to be growing nicely and yet be dirt poor. What is the difference that makes a difference?
Often it comes down to really understanding, at a practical level, the difference between revenue and profit and having clarity over the fundamentals of business finance.
Bottom Line Blindness
Revenue is obviously important and vital for growth but too many business owners pursue aggressive growth plans without much thought for how to efficiently turn those top line sales into bottom line profit and then how to productivity turn that profit into cash flow so that you can get paid and you can pay down debt and reinvest in growth.
Let’s take a look at some practical ways to adjust the balance…
- Interrogate your expenses
Go down your expenses line by line and check for the cost benefit. Can you justify the expense as adding to the business in a measurable way? Don’t look at other business owners and their seemingly extravagant spending as a benchmark, don’t spend for how you wish the business was operating, spend only when needed to keep profitability high.
- Have a cash safety net
Don’t forget that business is inherently unpredictable and even the mightiest entrepreneur can fall. Make sure you build up a cash safety net equal to a few months worth of operating cash flow. Don’t wait until you get the unexpected bill or until a long dry spell happens. Aim for success but plan for failure.
- Pay the necessary amount of tax but keep a strict eye on it
Make sure that you have an accountant who can ensure that you’re not overpaying on your taxes. It’s good to pay them but you have a responsibility as a business owner to make maximum profit. Anything less is a dereliction of duty.
- Hire experts, use advisors but keep in control
Just because you hire bookkeepers, accountants, coaches etc doesn’t mean you delegate responsibility for understanding and keeping track of your finances. Nobody cares as much about your business or your wealth as you do! Ring up the ‘experts’ and scrutinise your statements. Make sure you understand why things have been arranged as they have and make sure you can articulate what the numbers are telling you and that you can act upon that knowledge.
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