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Step 2. Step Back And Evaluate
Don’t throw good money after bad. Remember that when you spend money on the product or for materials you can’t get that back unless you sell it.
The rule here is that you never borrow money to keep the business going. It has to stand on its own two feet. Money can be injected if it is for a capital item that will over time produce improvement in profits.
Don’t gamble! if you break this rule you do so at your peril. Do a financial analysis on your personal expenses and your business. This is the starting point of any analysis. Fill in “Doc 2” with the view of completing every detail accurately that is applicable to your situation.
All answers should be a yes for each question if your business is sound. If not, follow the steps at the bottom of the financial analysis to find out what percentage of financial crisis you are in.
Step 3. Cost Cutting and Cash flow
Cost is your greatest enemy. Look at unnecessary expenses and find every way to eliminate them. This exercise should be conducted whether you or your business is in crisis or not. Determine if your advertising works. An ad must recover its costs in sales and expenses or shouldn’t do it.
A business must have access to working capital. Some ways to enable you to do this may be:
1. Overdraft from the bank
2. Credit line from the bank using your business or house as equity
3. Numerous credit cards
4. Fixed loans from banks, friends or relatives
Step 4. Managing money through your bank account (“Doc 3”)
This is the easiest way to manage a business’s cash flow and profits. The system is broken up into 4 (four) bank accounts:
1. Business account
2. Business money management (overdraft) account
3. Tax and other yearly expenses account
4. Living account
Other considerations
· Has the business been given a reasonable chance to work
· Have I cut all unnecessary costs
· Is my business expanding
· Are sales or work coming in regularly
Step 5. Too Close Or Not
I never like hearing of a business closing but sometimes it's best to close and start something else that has better possibilities.
If you've realistically cut expenses just to maintain a business and it still loses money each month and you can’t see the possibility of improving your situation, close it down and start again.
However you had better learn from what you are doing now because the experience you gained on this business will be invaluable in evaluating and operating the next one.
Summary
Even if you aren’t in crisis, cut costs. You will enjoy making a lot of money instead of just surviving. If you are in crisis act quickly and turn the ship around.
DOC 2
CHECKLIST FOR FINANCIAL BUSINESS CRISIS EVALUATION
1 Can I pay my business expenses on time when due
2 Can I pay my business expenses without touching savings
3 Can I pay my personal living expenses when required
4 Can I pay my personal living expenses without touching savings
5 Are my personal and business accounts growing
6 Do i have enough money for holidays each year
7 Do I have a debt free credit card
8 Can I put some money into investment monthly
9 Do I have a savings account that holds 10% of all monies that I earn
10 Do I have enough money saved so I can survive for 6 months without an income in case of emergency
Total number of yes checks ________ X 10 = ________Divided by 1.2 = ________
X 100% = ________ % chance of being in a crisis
If your results are 15% or less chances are you have a good business. If your results are 16% to 33% you have a very good chance of tweaking your business to set it right. However if the results are above 33% the chart below will tell you what you should consider doing in your business to rectify and bring it into the correct balance.
Percentage Action / Remedy
16% or more Make some small adjustments to your business or personal finances
33% or less Make some substantial adjustments to your business or personal finances
50% or less Make some substantial adjustments to your business and personal finances
60% or less Make drastic changes to your business, personal finances and delay all / stop spending and get advice
67% or less Make drastic changes to your business, personal finances, delay all / stop spending and get advice
76% or more Make plans to wind up your business and think seriously about your future in business and starting again
DOC 3
MANAGING MONEY THROUGH BANK ACCOUNTS
ACCOUNT NAME
1 Business Account
2 Business overdrafts Account
3 Yearly expenses Account
4 Living Account
PURPOSE
1 Business expenses
2 Working capital for cash flow purposes
3 Tax and other yearly expenses account
4 Living account
HOW IT WORKS (with every dollar you receive)
1 Every cent goes into this account
2 A cheque is drawn from account no.1 to repay any moneys that were used to perform your project and cover all expenses for the project including wages,
THIS ACCOUNT MUST NOT BE USED FOR/OR DRAWN UPON FOR ANY OTHER REASON
3 You bank your estimated tax % of the cheque you received from each job (usually it is about 20 – 30% of the profit)
4 A cheque is drawn to manage the household living
BALANCE
1 Positive
2 Always leave neutral
At the end of each month one month in arrears
3 Your work estimations should include the allowance for paying tax. This account will always be in credit.
4 You can spend this account at any time
Notes:
In an Internet business this is a little easier to do than in a traditional business. These are the things you have to ensure so that the above can happen. Firstly at the time of the job or business transaction that is accepted by a client, you go ahead and draw the cheques from the no 1 account. Hold them for banking until the customer has physically paid for the job.
Now this gives you the power to monitor the progress of the job. If you see for example that you are getting behind in time for the completion of the job, be prepared to stay and work longer on the job to keep within budget. In addition to that be on the look out to cut costs of materials and products that have not been specified in the quotation price.
In order to enable you to do this, you will have to make agreements with your employees and staff. The agreement, (which should not be negotiable when a business is in crisis) is that they will work back so that you can complete the job in the time you have quoted on. If you cannot get this commitment then consider alternative options for the offending employee’s replacement.
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