Lauren glanced up from her paper-strewn desk. Her forehead was furrowed, and her lips were pulled into a thin line.
I’ve seen this look a lot on small business owners.
Her digital marketing firm was six years old, and she had 12 employees. The company was doing well. But…
It Was Time for Me to Ask the Question
“What’s the monster under your bed that keeps you up at night?”
Lauren sighed. “Payroll,” she said. “Every month I sweat it out. After covering all of the expenses you’ve seen from doing our books, I’m always afraid we’ll come up short. Especially since I hired that last copywriter.
“My husband Ryan—and even my 10-year-old daughter Sidney—call me on how distracted I am when I come home! I pay everyone else first. Too often I skimp on my own salary. And we really need my paycheck to keep our household afloat.”
I smiled. “You’ve just taken an important step in cutting that monster down to size.”
Step One: Name the Monster
Many small business owners have a nebulous feeling that something isn’t right—or could be going better. They think this is just part of the uncertainty of running your own business.
And it’s our job to help them name the monster so we can tame it together. In the process, we remove unnecessary stress. This gives them more energy for the business and personal lives they deserve.
When I have this conversation with clients, they generally describe one of two monsters:
1. Fear of missing a key operating number in their business. For Lauren, this was payroll—and the amount of cash she needed to cover it.
2. Fear of a deadly “what if …?” Some owners say, “What if the world turned upside down, the way it did when COVID hit? How many months could I keep my doors open if no money was coming in?”
Step Two: Shrink the Monster
Once we know what’s causing the concern, we can create a plan to deal with it. This usually begins with knowing two numbers.
The first is calculating breakeven. This is the amount of revenues you need to cover all of your fixed and variable expenses for a year. (Want to know more? See “Find Break-Even Before You’re Broke.”)
The second is determining what “a day of cash” is for your business. Here’s the formula:
For example, if breakeven sales were $365,000, then you have to generate $1,000 every day.
With these two numbers in hand, we can easily map out ways to run the business to get there.
If the company’s current day of cash is $750: what strategies can we tap to 1) add another $250 or 2) lower expenses (without impairing our capabilities) to reduce the amount of cash we need?
Then the Magic Begins
I’ve seen this exercise improve business owners’ lives in three ways.
First: Instead of investing time in worry (which pays no return!), owners know what specific actions to take. With clear goals, methods to measure their progress, and accountability shared across their team, progress happens.
Second: The advances they make usually lead to setting higher standards. Lauren’s original goal was to have a cushion of one month’s payroll in the bank. After reaching this, everyone in the company agreed to strive for the new cushion of a month of payroll plus 30 days of operating expenses.
Third: Owners get a better understanding and use of their balance sheet. They start paying attention to the relationship between cash and expenses. Their current ratio takes on new meaning. This is the total amount of assets they could turn into cash in the next three months, divided by the amount of money they will pay out in the same period.
Release Your Monster Stress
People often are surprised by my background which includes over a decade as a massage therapist. A unifying theme behind my meandering professional life reflects my purpose in life: to reduce stress for the people I care about. And that certainly includes clients.
If you’re a business owner, try this two-step process for confronting the monster under your bed. What happened for Lauren? Her business is creating more cash. Just as important, her people are more relaxed and productive, and she and her family are back to enjoying each other.
This stuff really works. If you’re ready to live with less stress and need help, contact me.
What Can I Learn Today to Improve Our Financial Performance?
You can hear when an engine is running smoothly—or racing or sputtering. The same is true for the financial drivers of your business.
You just need to know what to listen for. The good news is that your numbers are talking all the time!
Here are the best ideas we can find on how to ask your business for the information you need, to understand what it says, and take action on what you learn.
- Accounting (7)
- Bookkeeping (21)
- Budgeting (8)
- Cash Flow (12)
- Payroll (4)
- Time Tracking (6)
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