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I come across a lot of mums with businesses and one of the common things I find is that they have little idea about whether their business actually makes any money. I also find they don’t have sufficient cash flow to develop the business.
It comes as a real shock when business mums find out that they have been working for the last year for no money or even worse that the business has been costing them money.
There is no point spending time, money and energy on your business if it doesn’t make you any money.
So how can you easily evaluate if your business is making any money if you don’t know a lot about finance. Well, first let me say why it is so crucial. If you don’t know how you are doing, how can you improve it and how are you going to stay in business?
I am going to show you a few basic things you can do to monitor your business and improve its performance:
- First the basics – you need to have more money coming into your business than what goes out of your business. I can hear it now - well that’s simple, everybody knows that and yes they probably do but you will be amazed at the amount of people who have no idea how much they spend each month but continue to spend money they don’t have.
- Have a working budget that help you to identify number of sales required, expenses, breakeven point and profit or loss.
- Complete your accounts on a regular basis so that you can compare them against your budget. This can be a really simple process and you don’t have to purchase expensive software, you can even do it on an excel spreadsheet if you don’t have a lot of activity.
Monitoring them on a regular basis will allow you to identify early on areas of your business that may need to be improved.
- Look at your sales. The figures should be improving - if they are not, ask yourself why. What are your strategies for making sure you achieve your sales budget. How are you going to generate more sales?
- Look at your costs. Are your costs in line with your sales - if you are not getting the sales you need, reduce your costs or increase your sales?
- Know how much profit you make on each of your products/services. The aim is to make as much Gross Profit out of each of the products as possible. The higher your gross profit percentage the more money you will make.
- Know your business break-even point – this is how many sales you need to cover all your costs. If you cannot cover your costs you are going to lose money and eventually go broke.
Doing these few things could make the difference between making money and losing money.
Here is an example:
AXY business makes $2,500 in sales per month and makes a guess that their costs are around $2,000 per month. So they know that they will make $500 per month. However, when they checked their costs they realised they were actually $2,500 per month which meant that they had not actually made any money at all. They had been working for months for nothing.
If they had known these figures before hand, they could have done several things. Reduce their costs and/or increase their sales.
As I mentioned earlier if you don’t know how you are doing, how can you improve it and how are you going to stay in business.
A great way to help keep your business on track would be, if you are already a Mums in Business member to access these plans and other in depth resources on the Business Essentials website. If you are not a member why not chat to other business mums just like you on the mums in business – business discussion forum. Get your free access by going to click here where you can also discover proven, easy-to-apply strategy that mum’s just like YOU are using every day to start & grow profitable businesses!
From Alison Basson - Mums in Business, for mums and women who are serious about business
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