Sometimes it’s hard to focus on the bottom line – making money! You may have a fair idea of your bank account balance, and what’s coming in and going out – but is that enough?
Here are some of Beany’s suggestions for bringing more money into your business.
Many people make the mistake of not knowing their current situation, which makes getting anywhere difficult.
Xero has some great reporting tools and has recently introduced a Business Snapshot which gives a lot of insightful information on one page.
As Xero’s Support websites have excellent and clear information, along with how-to videos, we’ll refer to them for explanations.
Don’t necessarily look at the current month as not all expenses may be in. Instead, look back at earlier months and get a feel for the pattern of your income and expenses. Are there any expense accounts that look unusual?
Clicking on any account will take you through to the detailed information and you can see the transactions.
Bonus tip: right click to open a new tab for each account! Then you won’t need to keep going back and forward.
Spend 30 minutes on this exercise and make notes about expenses that are unexpectedly high, or you believe you can reduce.
From your notes, set yourself a target of savings or income improvement. For example, you can aim to increase profit by $600 per month by:
- Increasing sales by $200
- Reducing subscriptions by $100 by removing an old subscription you don’t use
- Calling the bank and negotiate a better credit card/bank fees rate – saves $50
- Calling a key supplier to get a better rate – $250
Now that you have more insight into past transactions, it’s a great time to work out a monthly cash flow forecast or a budget. A budget focuses mainly on profit, while a cash flow forecast looks at money coming in and out from all sources.
A great starting point is simply taking your income and expenses from the previous year and dividing equally into 12 months.
Expert tip for Xero users: Go to Reports / Accounting / Cash Summary. Enter the information for Date, Period, Compare With (see below), and click Update. Export to Excel and you can use this as your starting point.
Next, critically review the income and expenses on a line-by-line basis and adjust each month up or down where needed.
- Your income may increase or decrease during holiday periods, or with the change in seasons?
- Think about the timing of expenses – memberships may be once a year, ACC levies are usually due in July/August, rates are paid four times a year, and your power bill is likely to be higher in winter.
- If you plan to purchase assets, obtain a loan, or pay off a large amount of debt, factor these into your cash flow forecast.
Entering your financial information into Xero’s Budget Manager will make the next step (Monitoring) very simple.
It is very important that you keep an eye on how your actions have changed things. This creates motivation for more change.
You can monitor the improvement in different ways so consider what will work for you.
You can diarise an hour a month to sit down with your Xero file and review each goal and see what has worked. To do this requires a certain amount of self-discipline, particularly when life gets busy.
The key thing is to do this regularly, be honest about the results, and keep up a process of improvement. Once you’ve implemented changes, think of it as the start of more, rather than the end.
And finally, be smart about what you do with any extra cash in the bank. Make a plan about this as well.
- Pay down debt
- Use it to be more productive by buying new machinery, or on training for you and your team
- Invest more for your future
- Treat yourself (occasionally!)
Whatever you do with the surplus, do it consciously and prepare for your future.