5 Questions Every Small Business Owner Should Know the Answer To
In this post, we’ll reveal the five questions that you should always have the answer to when running your small business, so that you can remain financially stable and plan for the future.
Can You Answer These Six Business-Related Questions?
1. Why Does My Business Need a Budget?
If your business doesn’t have a budget you’ll experience various financial issues, such as not having enough money to pay for fixed costs like rent, payroll and IT services. This can put your overall operations in jeopardy, since it’s unlikely that you’ll be able to function without these crucial expenses.
To avoid major financial issues, you should create and maintain a structured budget. Having a budget will allow you to set goals, invest money more strategically, and avoid debt.
2. Why Don’t My Profits Equal Cash?
Many people get the definition of “profit” and “cash flow” mixed up.
The money left over after all expenses have been deducted from your business’s revenue is the profit, while cash flow is a snapshot of the amount of cash on hand coming into your business and flowing out. Only when you have enough cash flow to cover any outgoing payments will your business be labelled as financially stable.
Therefore, profits focus on the sustainability of your company, and cash flow ensures that your business can afford all necessary expenses. Ultimately, it’s crucial that you don’t mistake your net income as cash; your company can be profitable and still not have adequate cash flow.
3. How Much Money is My Company Generating?
Accounts receivables are the outstanding invoices that your company has remaining. These balances are created with the selling of a product or service to a company who hasn’t yet made a payment.
First, you need to know how much your receivables age, which is the length of time that it takes your customers to pay your business. If late payers keep delaying their payments, you must go back to your credit terms for those customers and make the appropriate changes.
Knowing your company’s current balance in its accounts receivables will ensure that cash is always flowing in. Then, you can use this cash to pay for expenses and invest any remaining money into the company.
4. Can I Identify My Business’s Growth Drivers?
Business growth drivers will have a major effect on your business’s performance. The trick is to concentrate on a few primary growth drivers, then determine how your business can elevate them. Using sales metrics would be an excellent example of a growth driver because it’s measurable, can be compared to last year’s figures, and can grow over time. After selecting your business growth driver, use Key Performance Indicators (KPIs) to determine what you should focus on moving forward.
5. Is My Business Heading in the Right Direction?
Creating goals is a great way to measure the success of your business. Your goals will differ depending on what you want to do. For example, your goal could be to increase business sales by a certain percentage.
Once you select a goal, you can decide the best course of action. Start with a SWOT analysis to help determine how you’ll achieve your primary goal. Once the plan-of-action is set up, monitor the goal to ensure your business is headed in the right direction.
Now that you’re aware of these five questions, make sure that you’re always aware of the answers. Having this knowledge will enable you to assess how your business is performing, and could save you from making dire financial mistakes that would jeopardize your business’s future.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.