When you reflect on your business, it was probably born from one brilliant idea, right? You discovered how to solve a problem and created a solution the world needed while realizing there’s potential to make money—pretty good money, actually. If you've been in business long enough, you might’ve learned it's not always as simple as it seems. Sometimes, it takes several years, a few hard lessons and a bunch of tears before you finally make money. The breakthrough often happens when you’ve figured out how to extract value from what you’re solving. What does that mean, exactly? It means turning that brilliant idea of yours into profits (higher sales than expenses) in your business. To wrap up financial literacy month, I wanted to hone in on this topic because, at the end of the day, all of us want the same thing: to transform the business we’ve worked so hard for into building wealth. Here are some key concepts to help you unlock your real value:
1. Have a financial blueprint
Your blueprint is like your road map to profitability. Instead of coming up with your prices on the fly, building a blueprint forces you to put more thought into your sales and expenses so you can bring clarity and strategy around your pricing. Start by taking a step back and looking at your entire business from a 10,000 ft view. How many products or packages of your services do you need to sell to reach your revenue goals? How much time will it take to sell your product/service, and is this an effective way to spend your resources based on how much it can grow your sales? On the flip side, you’ll want to assess your expenses in the same way. What’s the return on investment for the expense you're incurring? Can you afford it based on your current or future sales? How are your current expenses affecting your profit? Understanding your revenue goals, operating costs, short as well as medium-term cash needs, and profit margins gives you a ton of insights that you can use to build more profitable products/services. It can also help you articulate the value of your business when you’re seeking investors or bank financing. Like most plans, your blueprint might change over time, but it will give you targets to aim for in achieving profitability. 2. Cash is Queen
One of my university professors was known for drilling this concept into students’ heads. And, now as an entrepreneur supporting businesses, I get it.
Being able to manage cash flow is what sets apart successful businesses from unsuccessful ones. After all, there’s no tomorrow, no lights on, if you don’t have cash.
So, how can you avoid running out of money? Look at your past cash flow patterns to get a good grasp of how much is coming in and out of your business every month. Then, use that data to predict how much cash you can expect in your business for the following month, 3 months, 6 months, etc.
If it looks like there’s a chance you could run out of cash, you can prepare for this in advance. For example, you can explore your options for financing and reach out to a professional to see what makes the most sense for your business. 3. Bookkeeping on the regular
I know, I know. You don’t like thinking about your books. But if you’re not paying attention to them regularly, how will you know how your business is doing?
Getting into a good routine with your bookkeeping will not only ease the stress of tax season, but it’ll also give you a way better handle on your finances. You can look back and see where you’re making money and losing money. And then be able to make business decisions accordingly that are grounded in financial data.
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