Here are five non-negotiable strategies to adapt and evolve in the new economy.
Every business survives not only on its customer service or products, but on its financial foundation. A lot of business owners shy away from the financial talk, which can seem overwhelming as it isn’t your specialty or your expertise, but therefore you need to look for guidance elsewhere. I’ve worked with hundreds of small businesses, all in various stages of their business’ lifecycle. Though the industries vary, the concerns and questions are most often the same. Here are the “Big 3” finance issues we deal with every day with our clients.
Your financial foundation is created when you first think of starting your business, and never stops being important. The foundation is made up of your financial projections (sales lifecycle, seasonality of your business, advertising, and staffing expectations, to name a few) and part budget (cash flow for the slow periods, debt repayment needs, investments coming in, and CRA payments). Spend time on your planning, as this is what will help you price your product or services, and review it often to manage your profit margins. If you are unsure of this, seek help from a small business accountant or small business centre in your area to help you work through this.
Even if you’re already open for business, if you don’t feel you have a good grasp on finances and are unsure if you’re making a profit, seek guidance before you get overwhelmed. Look in your area for innovation clusters, entrepreneurship and business centres, and development corporations; many of these have funded programs to either assist you in the above, or to provide funding and access to someone in your area that can assist you.
Concentrate on Cash Flow
This is probably the number one issue of all businesses out there, and it can only really be managed when you have your financial foundation in place. Your cash flow is what will make or break your business in many cases. You might have a profitable business, but if you’ve tied up your actual cash in things like inventory and debt repayment, you will struggle with paying your employees or your rent. When the cash gets tight, you need to take a serious look at your numbers to understand what is going on. Have you overextended yourself on debt repayment? Are you not planning and putting money aside for your HST payments? Do you have products sitting around that you can’t seem to move? All these things impact your cash flow, but not your bottom line.
Get back to your financial planning and look ahead when it comes to things like inventory. Don’t buy what you don’t need just to have it take up space in a closet. If the debt is weighing you down, get to the bank and discuss refinancing. Look to other loan options, such as the Business Development Bank of Canada (BDC), to help ease the pressure. Spas need a lot of equipment – expensive equipment – so watch your financing and make sure you can handle the payments. Talk to your bank or your local business advisory centre for guidance.
Pricing for Profitability
To be profitable, you need to define it for yourself first: Where do you want or need to be? Understanding where you want to be will help you set up properly. What do you need to take home at the end of the day? Do you have a list of all the costs associated with your business? If I asked you, could you tell me exactly what goes into a shellac manicure or a facial and break down the costs for all those items? No? You need to, as otherwise how do you know what to charge? Yes, there are industry standards, but don’t follow standards blindly if it means you have no profitability; don’t assume the neighbour next door has it together either, do your own due diligence. When you understand what everything will cost you, you can then figure out what you need to charge and how many of those sales you need to make to get to your desired profit. Many businesses don’t enjoy accounting, but think about how great you’ll feel when you truly understand how it works in your business.
Dealing with the accounting work for your business can sometimes be overwhelming, but it doesn’t have to be daunting. Focusing on your business is key to get your product and service moving, and as tempting as it is to go it alone, invest in the support, if you need it, so it doesn’t railroad all your hard work.
Your financial foundation is created when you first think of starting your business, and never stops being important.