Plan and Count Your Beans

As a former Director of Corporate Financial Planning for a large corporation and with a degree in accounting I have heard my share of bean counter jokes. Like this one: “what does an accountant use for birth control . . . his personality.” Jokes aside, for the past six years, as a business coach, I have found that my financial background has helped me teach business owners how to run their business more effectively. If there is one consistent weakness I have noticed with owners of small businesses is their lack of financial/accounting knowledge.  Sometimes I am amazed that many business owners consider a periodic glance at their checking account constitutes a financial review. One of the most common reasons businesses fail is poor financial management. Not only should you count your beans but you should be planning your beans as well. It’s not the most glamorous part of running a business but it is a necessity. So how do you go about planning and counting the proper way? Here are some ideas.

First you need a system to do your daily accounting. There are plenty of software packages out there, QuickBooks being very popular among small businesses. Consult with your accountant for the best solution for you. If necessary, hire a bookkeeper on a part time basis to process transactions and provide you with proper weekly and monthly reports. Determine what financial elements are important in running your business. Tracking the basics like sales, direct costs and overhead expenses seem obvious. But there could be others.  For example in a retail business inventory levels and turnover are important. Other areas might be the amount of labor it takes to produce a product or the cost of parts used to repair automobiles. What are the important elements in your business that, if improved, will also improve profit? That’s what you should be tracking.

Now that you’ve determined what to track I would suggest you develop standard monthly or weekly reports and review the results. Look for trends and if something seems to be going in the wrong direction investigate why and determine what you need to do to reverse that trend. Involve your staff in areas they can have a positive impact on. Explain the target result and see what they come up with. You might be surprised.

The next step in financial management is planning. You should develop a monthly budget for the year. Of course, it makes sense to do that in the beginning of the year but heck, if you haven’t done one yet, plan the remainder of the year right now. There are a number of benefits to developing a financial plan.  It helps in your decision making, like when would be a good time to invest in assets or when would it be wise to be on the frugal side. It can help in identifying problems before they occur. And it could help you to allocate appropriate resources to a given project or during a given period.  Plus it will help you monitor your performance throughout the year.

One last concept I’d like to discuss related to financial management is cash flow. Cash flow is the life blood for small businesses. Many business owners take a too simplistic view of cash flow. Many simply say “I get cash when I sell my products and I use cash when I pay my expenses.” It’s a little more complicated than that. For example, your customers may purchase your products or services on credit. They may not pay you for 30 or 60 days or even longer. How do you plan for that? There are also other sources of cash like selling an asset such as a vehicle or machinery or property that is not a direct relationship with your normal business transactions. On the other hand there may be uses of cash that are not related to every day business transactions like the purchase of an asset or the repayment of debt. The objective of good cash flow management is to have enough cash on hand when you need it. It’s a simple concept that eludes even the largest of companies.   

As you can see, counting and planning your beans is a very important part of running your business that deserves your attention. So, hold the bean counter jokes for another day. Put a process in place where you can manage the financial aspects of your business to improve the overall results.