You’ve probably heard a whisper of the latest major clothing company that has gone bankrupt. How exactly does a company go from $85 million dollars in revenue in 2014 to bankruptcy protection at the end of 2016?
According to analysts in this LA Times article, Nasty Gal’s growth was fuelled by heaving spending in advertising and marketing creating what is known as a leaky bucket situation.
It doesn’t matter how much water you pour into a leaky bucket, if it’s full of holes, eventually you’re going to lose all the water. The same is true for your business profits.
Anytime your business spends more than it makes, you’re leaking your profits out through unnecessary spending.
Over and over again, myth marketers have told you that you must invest in your business for it to grow. What they fail to tell you is that you should be a smart investor.
When you’re a smart investor, you know how much revenue you have in your business, what your profit margins are and how much you want to invest in marketing and advertising.
There is nothing wrong with investing in your business as long as you have a solid plan to track what you are doing objectively.
When you waste money on things that don’t require big expenditures (like outsourcing too much, or hiring an expensive business coach you’re not ready for yet) you set yourself up for failure.
Many business owners treat the money in their bank account as though it is spendable, instead of understanding the difference between cash flow and how much of that money is profit versus, what needs to be paid in taxes.
Numbers scare people and what you resist, will always persist and continue to be a problem.
Failing to understand your numbers is a recipe for disaster
But disaster does not have to be in your future if you choose to embrace the fundamentals of money management in your business.
It doesn’t have to be hard, scary or complicated. You only need basic math skills to know where you stand.
You know how to add and subtract so stop letting numbers intimidate you.
When you take your total sales and subtract your total expenses, you end up with your net profit.
Your net profit is what is left over.
There are only two ways to change this to a more favorable number: Earn more or spend less.
You can’t change the outcome if you don’t know how you’re doing.
Here are three things you can start doing right now:
1. Every month look at your bank statement and ask yourself if you deposited more money than you spent. If you did, that is a good thing.
2. Every week, track your sales so you can keep track of exactly how your business is doing.
3. Every month, review your bank statement and categorize everywhere you are spending money so you can see if it is a necessary cost, or one you can eliminate. I’ve seen people add 15% to their bottom line by removing subscription and membership fees from their business that they no longer use.
You don’t have to wait for your accountant to tell you how your business is doing if you’ll commit to looking at your own numbers on a regular basis.
Leave a comment and let me know, on a scale of 1-10 how confident are you when it comes to understanding the numbers in your business? (10 being expert)
P.S. If you want to learn more about this topic – join me today at 3:00PM EST for a free webinar. Register here: https://lisalarter.com/webinar