Ways To Check Your Business is Producing Results

In the beginning, many start with stars in their eyes about what having their own business will mean and how the money will come pouring in with little or no effort; because of course, the idea or product is brilliant. But as time goes on, the new business owner may well realize that their business isn’t going as planned in the revenue sense or in the time sense. Some may close their doors prematurely. Some may keep their doors open indefinitely, pulling down family assets in the process.

Cash Flow:

Most businesses struggle with cash flow. Indeed when first starting your business, the tendency may be to spend all the money coming in on making and expanding your company. But then of course, a bill you had forgotten about resurfaces and you have to tell the other company or person to wait, that your cash flow. The fact that you are identifying that your cash flow is down may make the business owner doubt their abilities but cash flow is a fact of life for business, from the biggest to the smallest. There are times when the money comes in really well, perhaps a season and there are also down times.

One of the biggest problems with cash flow is when you are accepting Purchase Orders and waiting for the bill to be paid.

The best way to calculate if your business is worth keeping the doors open in terms of cash is whether it is a. covering all of its bills and b. whether all staff are getting paid as well as you at the top. You can also look at what capital purchases were made that bring assets into your company. If money is being spent to acquire assets at any level, chances are your business is doing well. It’s when your cash flow is negative, your bills are not being covered and you are not acquiring any assets (beit products or land).

To calculate this, you must look at your expenses versus your output over a 12 month period. Track where your money supply is short and where it is high. Learn to predict how well your business is doing in certain seasons and try to track the reasons for this upsurge or downsurge. I’ve actually met people who closed their business just before December. They felt that they were in over their heads too far and that keeping open one more month wouldn’t matter. But winter time is a buying season and with the advent of sales and shopping in December and January, there is no doubt they would have been better toughing it out.

The main business cycle is to open your doors for a year and spend and make money. The product or service has already been invented at this point. Money has already been invested and the main thing is to work on marketing to get a better share and to get your name out. The second year, you look at all your expenses and you start slashing. So if you accepted that your phone cost 100 dollars in the first year, you now look to other providers to beat that amount or to offer more services with that price. On the third year, you expand by buying assets. Doing this business cycle over and over again every three years means.

So in the case of a business that is not covering all their obligations, they may want to look at restructuring their outflow. Rather than paying a firm they need for layout and design per job, instead look at giving them a standard amount of money a month. In the case of high cost items, look at putting them over two years with the outflow again steady. This gives more stability to your business.

Certainly if you are negative for two years, shut your doors, pack it in and move on or seek to reinvent yourself. If you started with a product, there is no reason under the same name you can’t provide a service. Start again with the business cycle. Many business people have had flops for businesses right away but have gone onto run successful businesses, taking what they learned.

The business must always pay for itself and getting the accounting to have stabliity can be a driving force in sorting out cash flow problems.

Time

How much time should the business eat of your time? Are you in trouble if you are spending too much time on your business?

The average start-up of a business exceeds the average work week by approximately ten to twenty hours. So 50 to 60 hours per week to set up your business over a year is fine. Beyond that the second year, you’re in trouble. And if at that point, you can’t hire someone to split the time, then you should seriously consider closing your business. To your peril, you can lose your family, end up in divorce, wake up from all that work to find your entire world has been shaken upside down.

If you can’t devote 50 to sixty hours a week to your business plan to start with, my suggestion is to split your business plan in half and start with phases. Phase one is a certain product. Phase two is a certain product. This cuts your work week to your business in half and allows you to pursue outside employment or look after kids.

A good way to monitor time spent is to just create a schedule of when you want to work and also what you’ll be doing.

Assets

If your business is not developing assets by year three, then you could be in trouble. It means you’re standing still as a business. Assets can mean anything you can sell that is a product. But it refers to the buying of those items. So if you have ten thousand widgets of some sort to sell over the next however many years it takes, then you’re OK. If you’ve bought land with the money from your business or purchased another business, then you are acquiring assets. This is key. Without these assets, all you have is the name of your company and your work.

If you find yourself in a continuous spiral of not developing or buying assets, having only enough products to last a month or two, then again you should consider closing.

Assets are like the chestnut a squirrel buries in the field for when times are low. Imagine being able to liquidate or sell-off property if need be to make your business buoyant or to face difficult times in your personal life when you cannot devete as much time to your business.

Sales

It shouldn’t cost you more than you make to get the sale. Therefore, your advertising budget should fit neatly cost wise into less than 20 percent of what you make. Anything more means you’re spending too much.

The phone plans cost little. Faxing and email are pretty affordable. But many have been disappointed by mailing results. Unless you can buddy up with a few companies to make it affordable, you may be surprised at results of .05 percent per standard mail-out.

Summary

In determining if your business is worth it, look toward cash flow, expense to get sales, acquisition of assets and also allocation of time.