By Stephanie Raimbert
The coronavirus pandemic is forcing small businesses to reevaluate their business’ growth strategies with the hopes of generating more time and money. Growth requires figuring out how to protect the time and money you have and only spending it on the important activities and resources.
Firstly, according to Entrepreneur, businesses that have a very clear "what" and stick to it grow faster than others who don’t. Secondly, businesses that choose to go after a particular type of customer are the ones that grow the fastest. Thirdly, being clear of the scale on which you want to grow will help you make so many decisions about how to find and serve your customers.
When you know what your chosen end result is, you can make strategic decisions about your business model and your marketing activities right from the start. This way, you will be able to better use your two most valuable assets — time and money. When you know what you do, who you do it for and what scale you want to do it on, you can make fast strategic decisions to keep yourself focused and on track.
One strategy you can use to grow, improve, and expand your business is regularly updating your accounting reports. For information on the three big benefits to this, click here. Firstly, you can strategically increase your revenue by adding new high-quality clients while letting go of lower-quality and lower-paying clients. Secondly, you can cut out underperforming products and services by identifying expensive recurring tasks you may be able to outsource or eliminate, which can lead to significant growth. And thirdly, save time and money at tax time by having your bookkeeping updated.
The most important accounting report for any business is the profit and loss statement, also called a P&L or income statement. This report tells you how much money a business makes and a lot more. A well-run bookkeeping operation includes details for where you spend and where your money comes from. Small business owners should look at this report monthly. It is also a good idea to look at trends of previous periods according to Entrepreneur. This should tell you what’s working well and what isn't, as well as help you focus on the most profitable parts of the business.
The second most important accounting report is the balance sheet. A balance sheet gives you an overview of business assets and debts at any given time. For small businesses, a balance sheet includes assets, such as bank accounts, accounts receivables, possibly an investment account as well as property, computers, equipment and other saleable physical, and intangible property. Liabilities generally include things like credit cards, business loans and anything else your business owes. The accounting equation is based on the balance sheet. It tells us that assets plus liabilities equals equity. The difference in what you have and what you owe should ideally be a positive number and one that grows over time.
When examining the balance sheet, also look at the short-term assets versus short-term liabilities. If you have payments owed soon, you won’t want to run out of cash without noticing what your assets and liabilities are.
Next, your accounts receivable (A/R) aging report tells you how well you are doing on the collections side. Look out for growing late balances from any customer. Just as you should be looking at who owes you money, you should be looking at who gives you the most of it. That’s when your revenue by customer report comes in and tells you how much you made from each customer over a period of time. Building good relationships with quality clients can turn in to a profitable and reliable income stream. However, beware of putting too much faith in any one income source. If too much revenue comes from one source, that is called “revenue concentration risk.” If one client leaving would ruin your entire business, you need to expand who your business serves.
Lastly, your accounts payable aging (A/P) report tells you individuals you owe and how much you need to pay so you don’t miss the due dates. Paying late can wither relationships and may lead to late fees and additional costs. So, paying on time can help you save time and money and might even get you an early payment discount from some vendors that you need to pay. That’s a big win-win!
Proprietary Data Leverage
Another growth strategy is using your business’ proprietary data to leverage time and money for your business. Proprietary data refers to any set of statistics, information, or documentation which is controlled solely by your business. Data is king based on an Entrepreneur’s report. The more you know about your customer base (and your potential customers), the better off you are, no matter what line of work you’re in. Most businesses gather a fair bit of data about their customers, including phone numbers, email addresses, places of work, and purchasing habits. Businesses that use it well will often see an 8 to 10 percent increase in profit and a similar reduction in costs. Your business’ data allows you to tailor product offerings to appeal to your ideal customer which translates to profit and happy customers. That is why it’s important to know how to harness your proprietary data by understanding these three core aspects below.
The first core trait of this data is that it creates useful material to attract links. There are plenty of sources on the Internet that can be used for articles, but some of the most powerful ones are based on proprietary data. For example, take the Baymard Institute, which offers tools for ecommerce checkouts and uses that data to create free resources that explain what they’ve learned about checkout usability. Your data can be extremely useful for content marketing. Creating resources that people will use for their content is one of the best ways to raise the profile of your own.
The second core attribute is that data targets customers better. Using data capturing makes it easier to target customers easier. With respect to effective customer targeting, Sisense, a data analytics company based in New York, has performed a great deal of research, particularly amidst the current global pandemic. “As a result of COVID-19, 55 percent of businesses have started to use data to improve efficiency, 47 percent to support customers and 45 percent to predict future outcomes,” it discovered. “Larger companies are more focused on cutting costs than small businesses, who are more focused on efficiency and supporting customers.”
The third core element is that proprietary data allocates resources effectively. Proprietary data can help build models for disaster preparedness. BBVA has used its data from ATMS and banks in the area of natural disaster to create models of how people behaved and moved in a disaster. They used this data to effectively prepare their own banks for catastrophic events and were even able to pass that data along to disaster planners. This allowed them to put the right resources in place before, during, and after a disaster in order to figure out what kinds of cycles the business deals with.
Essentially, data discovers new opportunities that we never would have had, and they’re all possible because of proprietary data. Data innovations are rapidly changing the way our world works, from healthcare to entertainment. Take a look at this list of data innovations that are advancing industries of all different kinds.
Strategic ways to increase cash flow
An alternative growth strategy is to overcome cash flow mistakes. According to Brittney Castro, founder of Financially Wise Women, she says there are several strategic ways to increase cash flow simply by avoiding these common money mistakes below:
1. Not having a cash cushion.
2. Overspending during the first few years of business.
3. Overestimating business revenue.
4. Not having a budget and reviewing it.
5. Not staying on top of invoices.
Cash Flow Mistake #1: Not having a Cash Cushion
It is critical to have money in the bank to address any short-term needs for your small business. Each business owner should have at least three accounts: (1) operating account – where you pay your bills, two payrolls, rent, etc.; (2) cash reserve account – where you earn some money to use as a line of credit to maintain your payroll in your operating account (10% of annualized revenue); (3) tax reserve – where you should have 40% of net income and profits to pay your business’ taxes. These accounts are also useful as a cash cushion to reduce risks for your business.
Cash Flow Mistake #2: Overspending during the first few years
Make sure you implement your plan effectively by reducing energy consumption or having an expensive office. You need to know and understand what your budget and forecast is. You also need to know your break-even point and your monthly expenses to keep your business open. All of these factors are important to avoid overspending during the first few years in order to save time and money.
Cash Flow Mistake #3: Overestimating business revenue
In order to prevent overestimating business revenue, you should first break down what you do know from your financials for specific goals every month. A business owner should create a realistic financial forecast of your business revenue based on facts. What drives your business? Every business is different and forecasting for your industry and the market is critical for your business to save time and money. You should research your industry and market to make future assumptions on objective facts by looking at online resources, using historical data, and talking to business mentors. Making sure that your company has more money coming in than going out is one of the most important tasks of running and growing a business.
Cash Flow Mistake #4: Not having a budget or reviewing it
It is very important to have a strong budget in place for your business. Some business owners maintain their business without having a budget or have a budget but don’t review it on a regular basis. You should review your budget regularly, weekly on your own as a business owner and monthly with your team. You should have a clear understanding of what your budget allocations should be based on your revenue and have a review system in place. It’s not about how much money you make, but how much money you keep that makes the difference.
Cash Flow Mistake #5: Not staying on top of invoices
There are two different types of invoices: one for customers and the other for vendors. If you want to increase cash flow, it is best to accelerate a strong collections policy of accounts receivable. One way to help stay on top of vendor invoices is to have systems implemented like a vendor invoice tracking system. It is a great tool to set your deadlines and automate invoicing to avoid late-payment penalties. Also, there is another tool called an SAP Concur Invoice for expense tracking which brings the freedom of visibility into cash flow because invoices are recorded as soon as they arrive electronically, so you always know what needs to be paid. The more you can be in control of your cash flow as a business owner, the better and invoicing efficiently can really help you.
Final Thoughts: Next Steps?
Small business owners should take the next steps progressively by taking action as soon as you can to save time and money for your business. They should also continue to learn about how to improve business cash flow, use propriety data and accounting reports for short-term and long-term goals. The key with any growth strategy to save time and money is to be deliberate and efficient.
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