How to Set Financial Benchmarks to Achieve Long Term Success

milestone2You need a starting point to establish business benchmarks. What better place to begin than with your own financial results. If you have been in business for at least a year then you can use annual data and look for specific areas to improve. Likewise, you can benefit from this practice in a brand new business, too. Here’s how.

The first step is to bring your books up to date.

Yes, I know, bookkeeping is not the most attractive task in business but it is something that we all have to do. If you are dead set against sitting down with the numbers consider subbing it out. Whatever you have to do this year to stay on top of the finances, do it. Believe me having this part of your business in order pays off when you know exactly how things are going. Also, when it comes to building your ideal business model with bench-marking, there is no room for guesstimates. Only actual will do. 

After completing the bookkeeping, the next phase is financial reports.

In this step, you prepare an accurate Balance Sheet, Profit and Loss Statement and a Statement of Cash Flows. These are the three basic reports that managers use in business. They are the score cards that provide information such as the amount of sales made, how much profit remains and what is the balance of cash in the bank. Other financial data that you may want to use for bench-marking comes from Accounts Receivable Aging, Accounts Payable Summary, and Debt Schedules.

Now you are ready for forecasts and benchmarks.

Using the historical information from financial reports is how to jump-start the process. The reports contain key numbers that you will use to calculate figures specific to your business. So rather than creating hypothetical measures, use actual financial results. Since business conditions rarely stay the same you should expect results change in future periods.

Your company is constantly changing so be prepared to forecast changes, too. One way to do this is by establishing a multiplier for each statistic you track. A multiplier provides the amount by which forecasts will increase. For example, if sales were at $100,000 at the end of the year and you expect them to grow to $150,000 over the next period, the multiplier will be 1.5 times the historical amount. Another point to keep in mind when forecasting is attrition so that you account for both the ups and downs in your business.

Overall, having the right data from the start is key to establishing benchmarks. When you couple financial information with thorough research in competitive performance, you have the makings for solid milestones in your business plan.

Do you use benchmarks in your business? Tell us how in the comments below. Want to learn what’s working for other entrepreneurs who are raising their financial IQ? Join our Facebook community.

To your success :^)

 

Have You Ever Began a Resolution Long After New Years Day?

winnersYou may have had your share of great starts and fizzled finishes as life got in the way but there is inspiration all around you. Whenever I fall short of a goal I remember that, “Winners never quit and quitters never win” because it puts situations into the right perspective. Here’s how it helps in managing your business.

Lazy hands bring poverty, but hard-working hands bring wealth.

Let’s say that you are behind in your bookkeeping and the year is almost over. Weekly calendar reminders and accounting updates flow through your Facebook stream but slothfulness holds you back. You are not alone. I polled a group of entrepreneurs who had reworked their schedules to include dedicated bookkeeping days. The results showed that even after eliminating the “I don’t have time for bookkeeping” factor, they still failed to get it done. Be sure to follow a routine so that you spot key insights and potential opportunities that only up-to-date accounting can brings.

Tide and time wait for no man.

When you do not control time it will control you. Each of us has different levels of discipline when managing business finance. Success starts by taking the first step. If you are resolving to getting the records in order, try this at your next bookkeeping session:

  • Remove distractions that compete for your attention.
  • Turn off social media, email, and take only emergency calls.
  • Come prepared with everything you need including client invoices, vendor bills, check registers, and bank statements. This will help you minimize workflow interruptions.
  • Finally, commit to a set time — maybe fifteen minutes or so and build up from there.

If you don’t get it all done in one sitting, no worries.  Just keep plugging away item by item and the next thing you know you will be all caught up. Remember, even as obstacles to staying on top of finances arise, there are far more reasons to keep trying than there are to throw in the towel.

Smile at your future!

Are You a New Do-It-Yourself CFO?

image

How comfortable are you with doing your own accounting? If the thought of having your tooth pulled sounds more exiting than balancing your accounts, read on. There are seven great resources that will help you become fearless as a your own home-based business CFO:

Subscribe to a newsletter or magazine. Newsletters are short and concise which is perfect for the busy entrepreneur. This allows you to digest snippets of relevant financial information in bite-sized chunks. You can start by signing up for a general accounting newsletter or one of the blogs at Inc and Entrepreneur

Attend a financial workshop. Non-profit organizations such as the Small Business Association (SBA) host free and low cost training. The workshops are designed to help the novice grow. You can learn more about these sessions by visiting the SBA website.

Get a book from the library. Another way to get money smart in business is by reading. There are many books by experts on the topic of small business accounting and finance. Take some time out to peruse library shelves. One book to keep handy is “Keeping the Books” by Linda Pinson. This is a great resource if you have very little experience in bookkeeping or records management.

Watch videos on YouTube. If you are not a reader or if imagery is more your speed, try the freebies on YouTube. There are countless tutorials by experts in the accounting field that you learn from online. It is also a great way to get added instruction to clarify the not-so-simple accounting topics that you read.

Listen to podcasts online. Similar to YouTube, you can also enhance learning by listening to internet podcasts. With this option, you have the ability to download sessions to listen to later on. These are especially good for when you want to maximize time exercising or driving in a car.

Take classes at a local college. Many universities and colleges now offer lifelong learning courses for people in business. These will take a bit more of your time and commitment but the one-on-one access to an instructor is often what you need to really understand how to manage money in business.

Invite an expert to train you in-house. Ask a business colleague if they work with an accountant who makes house calls. Some will come to your place of business or, with the use of technology, can train and answer your questions by internet or phone. On-site training is a convenient way to get up to speed on bookkeeping methods and technology. It is perfect for teams of employees and when you work alone.

Learning how to manage daily finances is key to building confidence as a do-it-yourself CFO. If you who have been in this role for awhile, I’d love to hear how you sharpen your skills in small business finance.