I just wrapped up a call with a business owner who has been an entrepreneur for over thirty years. This was the first year in three decades that he felt like he had his finances in order.
For thirty years he has scratched together money at the end of the year to cover his taxes.
For thirty years he has gone into the next year hoping he would have enough to cover everything.
For thirty years he didn’t know if he was making money or not.
For thirty years he kind of had everything together…but did not.
What I am about to share with you is what he began doing about a year ago and it has changed his business, his marriage, and the opportunities he now has to grow his business according the the vision he really sees.
Oh yeah, his team gets to benefit from this growth.
Rarely does school train individuals in the reality of owning a business which is why we built the Business On Purpose Roadmap. It is the map where every new and seasoned business owner needs to journey through in order to run a business on purpose instead of having the business run them.
We have taken a few destinations along the roadmap and strategically positioned them together to help you think through how to work through your year-end responsibilities.
There are six areas you will need to work through in order to prepare well for next year.
Some of these areas will require simply tweaking what already exists while others will require creating as new.
First, review your written vision story. If you do not have a written vision story, you must begin there. If you do not have a vision you and your people and your customers will scatter.
Your vision is a detailed snapshot of the future of your business. It is not your mission (that explains WHY you do what you do) and your vision is not your values (those are the curbs on the side of the road to make sure you stay true to where you are going).
Second, determine your 2020 “Financial Barn”. There is a powerful story of a rich, young, foolish businessman who decides that instead of generosity he will opt to build more and more barns to store more and more grain and goods so he can “eat, drink, and be merry”. The response to his master plan? “You fool.”
Each year we have our heroic business owners go through a powerful exercise to determine exactly how much money they should bring into their household living under the value of generosity instead of greed.
Most owners say, “I just want to make more money.” Why? What is it for?
If you have a plan then go for it. If you don’t then we are at risk of being foolish.
Add up all of the money you would like to spend on living, savings, giving, investing, hobbies, etc. What is your number for 2020?
Third, setup multiple bank accounts (we prefer at least five) in your business to provide separate locations for the lump sum of money that comes into your business. Mike Michalwicz has literally written the book on this in Profit First: A Simple System To Transform Your Business From A Cash-Eating Monster To A Money-Making Machine.
We’ve heard just about every excuse as to why this will not work, and yet we have loads of examples of business owners across industries and cultures who now have real cash profit, are excited to pay their taxes, and see exactly where each dollar in their business is to be allocated.
Fourth, build a simple spreadsheet that you can track weekly metrics for your business around the ABC’s: Accounts, Bookkeeping (Receivables and Payables), and Customers.
Every week we track our multiple cash accounts to see where we stand in cash as a business always shooting to retain three to six months of cash (Accounts). Weekly we also post our outstanding receivables and payables to see what impact that would have on our cash (Bookkeeping). Finally, we track multiple customer metrics like leads, conversions, follow-ups, downloads, and web metrics to have our finger on the pulse of how and where our clients are moving (Customers).
Fifth, write out a simple budget. Really simple.
Four major questions we are looking to answer in writing out a simple budget are…
- How much in cash profit do we need to be generating (see Financial Barn from step two above)?
- Where do we need to be spending money in order to generate our revenue (expense categories)? If it is unnecessary or not aligned with your mission then cut it.
- What do the answers to the first questions tell us about what our projected revenue should be so that we can generate necessary profit, serve the product/service goals we have, compensate our team, “wow” our clients, and live out our culture?
- What will our tax liability be so we are prepared?
Setting up a meeting with your CPA is a wise investment to help you work through these things. Please do not wait for the surprise phone call in December from your CPA asking for a check to pay your taxes. Get ahead of that!
Finally, set up a meeting with your business or estate planning attorney to walk comprehensively through your Life Planning process.
Life planning means walkthrough and setting up the appropriate documentation (Power Of Attorney, Buy/Sell Agreements, Contracts, Wills, Trusts, etc.). It is also a good time to meet with an Insurance professional so you can set up the appropriate protection given your life and business situation.
No one will call you tomorrow to ask you to do all of this. You must make the time, write it down, and implement it.
Scott Beebe is the founder of Business On Purpose, author of Let Your Business Burn: Stop Putting Out Fires, Discover Purpose, And Build A Business That Matters. Scott also hosts The Business On Purpose Podcast and can be found at mybusinessonpurpose.com.