Building cash reserves
It is not easy to build a financial cushion in your business. Experts recommend that businesses have six to nine months’ worth of income in a bank. The mere thought of putting $1.5 million in savings will cause panic if you have a $250,000 monthly business. When you are barely making your monthly payroll, what may seem like a well-thought-out idea can quickly be forgotten. How can a small business owner start a savings program that will help them long-term?
A savings plan is a key step toward better management. There are many reasons to build a financial nest egg. Savings allow you to plan for future growth and to have the capital to start those plans. A source of income that can provide a steady stream of income is essential for a company going through difficult times.
Market fluctuations such as an increase in oil and gasoline prices can have a significant impact on your business. You may need to tap into your savings to ensure that your operations continue to run smoothly. You can also save money to support seasonal businesses by purchasing inventory and covering payroll until you have enough cash. Remember that your business didn’t grow overnight, and you can’t create a savings account immediately.
Examine your monthly books to see where you can cut expenses and redirect savings to a separate account. This will help you keep track of cash flow and other financial issues. It can be alarming to see cash flow outwards with no end in sight. However, it is better to spot it and take corrective steps, than to discover your losses six or more months later.
Accounting functions have become increasingly complex, as has the business that uses them. There are many excellent software packages available that will help you manage this critical function. Quasar is an example of such a package.
Quasar offers comprehensive inventory control in all versions. The inventory module is the most basic of Quasar’s features. It allows business owners to track all inventory items and their locations. The inventory module does more than just keep track of stock. Wholesalers and manufacturers can assemble kits from component items. Once a kit has been assembled, inventory representing the component items is adjusted accordingly. You can group items into different categories. The groups can also be nested at many levels. For items with lower quantities, vendor purchase orders can be generated. You can set the selling price and cost of items and then discount them in many different ways. These items can also be reported on to show profits, margins, and sales per item.
Quasar’s strengths include purchasing and sales. Quasar can easily convert customer quotes into invoices that can be paid. You can create promotions and offer discounts based on customer location, date, or customer. You can report on margins for individual items, customers, or salespersons. A purchase order can also be converted into a vendor invoice. This can be paid in many different ways, including printing checks. Quasar can track miscellaneous fees like container deposits, freight charges, and franchise fees.
Quasar’s intuitive user interface makes it easy to enter data quickly and easily. You may find programs that are not designed for keyboard use. Some programs may require that you move your mouse over the keyboard to select commonly used options. Quasar has some menu options that can only be accessed via the mouse, but the majority of Quasar’s user interface was designed so you can use shortcuts to keep your hands on the keyboard. This makes data entry faster, which can help you save time and money in the long term.
The Bottom Line
You won’t know if your business is profitable if you don’t keep track of how much money you make. It is impossible to gauge how effective your marketing is. This doesn’t mean that you need to know your gross revenue or total sales. It is important to know your net profit. You can’t increase your net profit if you don’t know.
You must create a financial plan for your business. Then, compare it with the facts monthly. If there are any issues, take immediate steps to fix them. These are the steps to follow:
* Make a financial plan. Calculate how much revenue you can expect each month and project your expenses.
Lost profits cannot be recovered. Entrepreneurs often say, “I’ll make up the difference later.” when they compare their projections with reality. It’s not possible to make it up later. Every month where profits are too low will be gone forever.
* Take immediate action to make adjustments. Increase your sales efforts and market research if revenues fall below expectations. Find ways to reduce overhead costs if they are too high. There are many businesses similar to yours. How do they make it profitable?
* Be mindful of your budget before you make a purchase. Before you make any purchase, you should weigh the potential earnings and costs of any new business expense.
* You should evaluate the success of your business on profit and not revenue. If your expenses are nearly as high or higher than the thousands of dollars you bring in each month, it doesn’t matter what. This is why many high-revenue businesses have failed — don’t be one.