Improving your Bottom Line

All too often small business owners get bogged down in the minutiae of each little problem or challenge and lose focus of the big picture. Chances are you may not even be able to step back and see where you’re heading. Unfortunately failing to do this will not only cause harm to the business but it will also make it harder to sell when the time comes. Whether it’s not investing in key staff or losing track of cash flow, there are five bad habits common to most business owners. According to an article in the Financial Review, there are several bad habits common to many business owners. Take a look and see if you fit any of these.

Using the business as a personal ATM

A common tax reduction strategy used by business owners is to spend business earnings on personal expenses not directly related to the business. The logic here is that by reducing these earnings, the business will be liable for a reduced tax bill at the end of the year. While this may seem like a financially savvy strategy on the surface, it can actually create complications that could cost you much more in the long run. When you are ready to sell your business you will need to convince the buyer that a number of expenses you’ve claimed should be added back to profits as they are not “real” expenses. This may be a difficult argument to make after spending years arguing the exact opposite to your local tax authority.

Coasting along

It can be hard to step back from daily operations and the imperative to meet customers’ and employees’ short-term needs. But far too many business owners neglect investing the time it takes to develop formal business, financial, operational and succession/exit plans, and instead spend each day just trying to just get through their “to do” list. These plans are vital in uncovering whether all this running around is actually resulting in business growth, or if the owner is just running in circles for little return. To monitor and measure performance, and understand whether operations are achieving the desired outcomes, objectives need to be carefully mapped out and monitored. This will allow a business owner to identify areas of reduced productivity, or activities that generate lower-than-required returns and take appropriate corrective action.

Forgetting that cash flow is king

Most small businesses that fail do so as a result of cash flows issues. These can be caused by a variety of factors. Some of these include:

•  Having unfavourable terms of trade negotiated with suppliers or customers
•  poor debt collection practices
•  sloppy record-keeping
•  limited access to finance and
•  a lack of regular costing analysis to ensure profit margins are being achieved.

Unless you shore up your business’s cash flow, your ability to pay employees and meet suppliers’ invoices is at risk. Your capacity to meet unexpected debt obligations or finance periods of higher growth is also significantly reduced, resulting in missed opportunities at best and potentially forcing closure or bankrupting your business at worst.

Not investing in key people

People can be your greatest asset, but only if you select the right team, and create the conditions for them to thrive. Small business owners often fall victim to their own poor recruitment decisions. These can be a costly mistake, as staff salaries often form the largest proportion of a business’s expenses. Allowing poorly performing staff go can also be hazardous for a business owner, as employees who feel they’ve been dismissed unlawfully can initiate legal actions. Often business owners can also be tempted to employ friends and family in roles they may not be qualified for or suited to, creating resentment with other employees who may need to pick up their slack. Even business owners who’ve somehow managed to select a dream team of staff can make the mistake of neglecting to implement formal processes, or provide a comprehensive job description, KPIs and objectives.

By taking a look into the business as a whole, often it’s possible to identify these key areas for deficiency and take actions to maintain a smooth business function. Planning and correct execution of the plan can result in success and a long and profitable operation.