As you prepare to delve headlong into the realm of
entrepreneurship, and begin running your own business
enterprise, take a little more time to effectively organize
the operations of your business. The time spent doing
so at this juncture will pay tremendous dividends in
the not too distant future, and will continually reward
these initial efforts.
Let’s begin by setting up the “back office” operations of your
business. These include those functions involved in tracking revenues and expenses,
maintaining cash flow, and supporting the day-to-day transactional needs.
Unfortunately, some may consider these functions as
somewhat mundane. (Suffice it to say that they are often
not quite as sexy and adrenaline pumping as generating
revenue, growing your business to greater and greater heights, or being interviewed
by highly esteemed business publications or local media.) These functions
are,
however, CRUCIALLY IMPORTANT if you aspire to grow your business substantially,
improve profitability or actually get pursued for those business tycoon interview
opportunities.
Don’t panic; this is just good basic business organization and operations.
Let’s start with obtaining a basic accounting software program. There are
many basic programs on the market that are very user friendly, yet afford the
capacity for much greater detailed tracking and reporting as the business grows.
Your tax advisor can provide specific recommendations, often one that will sync
directly with their software thus making year end accounting and tax reporting
much more efficient for you both.
It is very important to learn how to obtain and understand
some of the basic “canned” financial reports
that your software provides. Money is the life-blood
of any business, and financial statements are the way
to constantly measure and monitor your business’ blood
pressure. Running a monthly Income Statement, Balance
Sheet, Cash Flow Statement, Aged Receivables and Aged
Payables reports should be sufficient to support your
business initially and provide the basic information
you will need as you grow revenues upwards of at least
one million dollars annually.
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Learning to read and understand those financial reports
is not as daunting a task as many believe, and help is
readily available from many reputable sources
including tax and accounting professionals, business consultants, local colleges,
and government agencies.
Next you’ll want to establish a few basic back office functions, such as
Accounts Payable (A/P) and Accounts Receivable (A/R) systems. One file drawer
for each, labeled accordingly, should be more than enough initially. One very
simple, but effective system is to set up a separate file for each letter in
the alphabet in both the A/P and A/R file drawers. For easy retrieval to deal
with any future issues, paid A/P and collected A/R should be put into separate
files that follow the same alphabetical set-up.
Businesses that do not sell on credit, or invoice for
products or services will not need the A/R system and usually
get by using only a cash receipts
system.
These paper file systems support A/R and A/P Aged reports produced by the
accounting software and help organize these important business functions.
To avoid spending
an inordinate amount of time on
these functions, routine on-going dates should be set for entering
cash receipts, billing/invoicing, and bill entry and payment.
The type of business, i.e., retail, service, etc. will drive
the necessary frequency of entering cash receipts or generating
invoices.
Organizing and tracking revenues is another critical
step in operating your business successfully. Regardless
of how your business generates its revenues, you should
identify and track them in an organized, meaningful fashion.
You can segregate and track revenues by product, service,
customer, profit unit, region or other relevant method
that identifies both the specific source, and respective
amounts of each revenue stream.
This enables you to recognize the customers, products
or services, that generate the greatest amount of your
revenues, and also allows you to compare the profitability
and amount of contribution to the bottom line from each
individual revenue stream. This level of revenue detail
can be integrated into future strategic planning and marketing
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initiatives to grow
your business and improve its profitability by helping to target
and capture a greater market share of those more lucrative
revenue streams.
Another important function is to establish a method to monitor
and control your business expenses. Knowing exactly what
expenses your business incurs
is of equal
importance to knowing how much those expenses total in any given period.
Business expenses frequently increase disproportionately to revenue growth
as a new
business starts expanding and increasing its presence in the market. As total revenue grows, it’s not unusual for small businesses to experience
smaller profit margins. If your business doubles its revenue without controlling
expenses, you may find you’re working twice as hard to make even less profit
than before. There are several easy methods of tracking expenses individually.
Begin by itemizing all expenses, which you can then compare by each line item
expense against the identical expense amount from previous accounting periods.
This is a quick method to review expenses to identify disproportionately. Like
any other corrective action, the next step is to identify how to reduce or control
excessive expenses.
By organizing and setting up these few back office business
functions, you’ll
better understand your business and have the tools needed to become a successful
entrepreneur and business owner.
© 2005, Paul A. Janssen
Paul A. Janssen, Principal
Management Enterprise Services, Inc.
mgtent@cablespeed.com
410-703-2218
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