A couple of years ago, I was retained to help a struggling business regain its profitability. After six days, I told the CEO that the problem was not sales-related. The problem was too much overhead and debt. The CEO disagreed with my assessment – and to my great relief my contract was quietly terminated. The company went out of business eight months later.
Running a debt-free business is probably contrary to everything that you have ever learned. And you might wonder why you should do it.
Here is why? When you have to service a debt that is not producing sales or revenue, you are under constant pressure to produce more of everything. On top of that, if sales start falling, you have got even more problems.
You as the business owner can run a profitable, debt-free business by doing these three things:
- Focus on sales.
- Reduce expenses.
- Start paying cash for the things you need.
I did not say it was going to be easy. You may not be able to expand as fast as you dreamed. However, you will be able to pick up a lot of business when companies around you are failing because they have too much overhead and debt.
Now here is what will separate you from the crowd and get you to the next level in your business.
You need to have a system of reviewing their financials monthly and require daily Key Performance Indicator Reports at least weekly. I am constantly meeting business owners who tell me that their CPA takes care of all of their financials. What is really happening is that the CPA is doing their taxes for them and not advising them on any potential problems.
If you do not already you need to do the following things now:
- Understand the financial part of your small business.
- Implement your business monthly financial review.
- Take action based on your financial review.
If you as the business owner takes the time to review your financial statements each month and review a weekly cash flow report each week, then you should be attuned to minor changes and can spot them, thus taking care of them before they become a major crisis.
You will be light-years ahead of the competition if you focus on sales, always look for ways to reduce expenses, act on findings of your monthly financial review and eliminate debt.
When businesses around you are struggling to stay afloat, you can glide by with a smile on your face, with the wind at your back and no weight on your shoulders.