2020 was a year like no other, one that forced many small business owners to focus on our finances to a whole new level. But if 2020 left you reeling, putting a few simple resolutions in place will help you feel more in control going into 2021. So here are 5 of my recommended resolutions to get financially fit in 2021.
Any plumber will tell you that a small leak, left unchecked, will most likely turn into a big one! It’s the same with your finances; the longer you leave it the bigger the job becomes. Before you know it, you have an unmanageable mess on your hands and you have no option but to call in the experts. Setting aside one hour a week to catch up on your books will pay dividends in the long run. Put it in your calendar, make it a recurring appointment, shut the door, and just get it done!
Becoming a business owner is, in a way, like becoming a parent. No-one gives you a manual, but everyone assumes that you know what you’re doing from day one! When it comes to your finances though, it’s essential that you learn the basics. Do you know your turnover from your profits? What about your assets and liabilities? These are all terms that your accountant will no doubt spout off at various points throughout the year, so make sure you learn what they mean for your business. Take a look at my A-Z of Accounting Terms for more help on this.
So you’ve set aside your one hour a week and you’ve got everything up straight. Check. You’ve learned what the basic accounting terms mean too. Check. Then what do you do? No, don’t log out! Spend a little time getting to know your numbers. How much profit did you make last month? What’s the bank balance looking like? Do you owe more than you’ve got coming in? What was the biggest spend last month? How have sales been tracking over the last 6 months? What’s your best seller? Asking yourself questions like this on a regular basis will give you greater understanding and greater control.
We’ve all heard about SMART goals (Specific, Measurable, Achievable, Realistic, Time-Based). And so many new year’s resolutions fail because they’re too vague, or too unrealistic, and so we set ourselves up for failure. For your business, a budget sets out your financial SMART goals for the coming year. It says, “If everything goes to plan, this is what my income and expenditure should look like”. A budget will give you direction and control, and is the basis for business success.
If we want to lose weight, we need a way of measuring our success (or lack thereof). Some people choose the scales, others prefer a tape measure, or simply a favourite pair of jeans. My point is that if you’ve set a goal – in this case your annual budget – you must have a means of measuring your success as the year goes on. Make sure you regularly review your budget against what has actually happened. By doing so, you can address any overspend as it happens, or maybe shift your marketing focus to attract more sales.
In essence, you’ll be catching those leaks before they get bigger, and setting yourself up for a successful 2021!