Today, I want to share an interview I had with Debbie-Ann Paterson, Owner of Coach Accountant.
The importance of small business owners understanding their finances.
Most entrepreneurs go into business to make money. Every decision they make will affect the well-being of their business. Understanding their finances and how this happens, will provide them with tools to make more confident and effective decisions, which will lead to making more money. Once you know how to make money, you need to give it a purpose. You can start growing assets and raising your standard of living.
What are some classic mistakes that aspiring entrepreneurs make?
Not having a mentor/coach from day one – you don’t need to learn everything the hard way, learn from someone who has been there and done that. A coach can give you advice on how to start a business, help you get increased productivity in your business, reduce your staff turnover among so many other things. They are knowledgeable, respectful, positive, enthusiastic, supportive, goal-orientated, and always have your back.
No brand, marketing and sales strategy – if you have no sales, you have no business. A brand is your business personality. People only do business with people they like, know and trust. Your brand is your tool to convey this to your market.
A digital marketing strategy will ensure that you are measuring how many leads, audition calls and sales calls you get and convert into sales. You need to ensure you are testing and measuring all the time, to ensure you know which strategies work for you, otherwise you could be wasting time and money.
Trying to do everything yourself – stick to what you are great at and employ/outsource the rest.
As small business owners, we often have too many hats to wear because of financial restraints. Do a future business organogram that will represent how you see your business in 5 or 10 years.
Then put your initials next to all the positions that you fulfil in your business today and see how many hats you are wearing. Then take an honest look at each position and see what skills you think you are lacking.
Now you have 2 options – learn some new skills or employ/outsource to someone who can do a better job than you.
What are some steps that small businesses can take to address their financial difficulties?
Stay on top of your financials
Preparation starts with awareness. You should make it a habit to check your financials every day. You need to have an accurate knowledge of your financial situation in order to make a feasible plan for the future.
It’s a good idea to use a Key Performance Indicator (KPI) system to understand which practices generate the most return on investment and which expenses you can spare. Understanding which costs are most worthwhile will allow you to prune your business when necessary. Besides, cutting costs that don’t add to your profit is an excellent way to set your company in good stead. The fewer financial burdens you when you have financial difficulties, the better.
Minimise Operating Costs
Tempting though it might be to splash out on swanky new office furniture or upgrade your coffee machine, these items aren’t really necessary. In order to prepare for hard times, it’s crucial that you keep costs to a minimum and reduce discretionary spending. Of course, it’s a balancing act. If you’re overzealous in cutting costs, you’ll damage your own productivity in the process. For example, it’s okay to repair or replace a damaged item in your office, but don’t make frivolous upgrades for aesthetic purposes. Carefully consider the return on investment of each cost to optimise your profits.
Improve your credit score
It’s difficult to secure a loan during difficult times and you’ll need an excellent credit score. The problem is that it’s pretty difficult to improve your rating when times are hard. Start working on your credit score now to put yourself in the best possible position should you require a loan to keep your small business afloat. Don’t limit your efforts solely to your business; it’s worth making sure your personal credit score is as high as possible, too.
Here are some straightforward ways to improve your credit score:
- Pay your bills on time
- Reduce existing debts as much as possible
- Regularly check for fraudulent activity
- Only use credit when it’s really necessary
Building small businesses that last