If our business is going to achieve what we want it to achieve, it has to be fit. Not necessarily lean and mean, but strong and healthy enough to run efficiently and tackle new challenges. Our business finances are the underpinnings of our business's strength; as they go, so goes the business. Follow the steps in this business finance makeover, from separating your personal and business finances through financial statement analysis, to make sure that your business finances are in good shape.
1) Separate your personal and business finances.
As I say in 7 Ways to Make Record Management Easy, a business bank account is absolutely necessary for good business record management. If you haven't done this already, you need to get a separate business bank account and make sure you use it only for business purposes. The cost of a business bank account is nothing compared to the time and trouble you might end up spending trying to unsnarl your books or figure out a paper trail if you were ever audited.
2) Prepare a business budget.
I know, I know. They’re old-fashioned. But the thing about budgets, personal or business, is that they work. Work through Prepare a Working Financial Budget for Business Success (About.com Business Finance) and then follow through by, as Rosemary Peavler puts it, looking at it every day, consulting it, following it, and making adjustments.
3) Recognize that you need an accountant.
As you see in How to Find a Good Accountant, an accountant's main job is not doing the books, but providing you with the business and tax advice you need to manage and grow your business. So pick one and seek his/her guidance.
4) Analyze your financial statements.
For this financial statement analysis, the two financial statements you need are the Income Statement and the Balance Sheet. If you don't already have these financial statements prepared, follow the links above to find templates you can use to prepare them.
First, examine your Income Statement. It shows you plainly whether or not your business has been profitable over the period of time the Income Statement covers. (If you haven't been regularly generating an Income Statement, make a pledge to yourself that you will generate one at least every six months. Established businesses normally produce an Income Statement each fiscal quarter.)
Second, use your business's Balance Sheet and Income Statement to calculate the current ratio, total debt ratio and profit margin as directed in Give Your Business a Health Checkup. Calculating these three ratios will let you see how your business is doing right now and diagnose potential problems.
5) Take appropriate action.
Three common problems that this quick ratio analysis can reveal are:
- Carrying too much debt
- Carrying too much inventory
- Problems collecting accounts receivable
Continue onto the next page to learn how you can solve these problems and get your small business into better shape.
Looking for more of the Small Business Makeover?
- The Business Planning Makeover - create a Business Action Plan that will provide your small business direction for the coming year or longer.
- The Customer Service Makeover - Learn how to provide good customer service, the kind of customer service that builds customer loyalty, gives positive word-of-mouth advertising, and increases sales.
- Information Technology Makeover - Learn how to secure and manage your business data, manage customer contacts, set up a document management system and prepare an Information Technology maintenance and crisis plan in this Information Technology Makeover.