Back To Basics – 5 Reasons to Love Your P&L

Submitted by: Carolyn Morrow, Entrepreneur since 1977, Past-President NAWBO-San Diego; former Board Member NAWBO-LA and NAWBO-California. Melanie Hamilton, former small business banker and financial planner. See www.BGAdrivesprofits.com

With 2009 FINALLY behind us, it is time to take a hard look at how your business appears on paper.  Your financial picture – a snap shot of your successes and failures – shouldn’t simply be put into your album of times past, but should be analyzed.  Typically, a business owner develops a business plan to grow revenues, but often ignores the true measure of growth:  the “Bottom Line”.

We all know what budget cuts are all about.  Perhaps that was your road to survival in 2009.  But a truly successful business goes several steps further.  The concept of “return on investment” (ROI) needs to be relentlessly practiced.  A budget cut that merely temporarily staved off a loss really has no long-term benefit.  ROI requires a true evaluation of expense vs. income.

#1 – Weekly P&L Review – your road to success
This exercise requires that you, the business owner, to regularly review your P&L and Balance Sheet.  You need to look at your reports weekly.  This is a chore that cannot be delegated!  Choose a day each week, and then close your door (and phone) to all interruptions.  This is your time to study and make adjustments.  There should be no surprises, since you also must approve (or know of them beforehand) all expenditures and see all outgoing invoices and incoming receipts.  It is absolutely imperative to have an accounting system that is kept up to date – weekly!  Hire a good bookkeeping service if you can’t do this in-house.  There is no excuse for late reports or accumulated un-entered data!  As the owner of your business, you need to know day-to-day what your financial picture looks like.

#2 – Budget for Marketing – it’s essential
Expenses can often be “shared."  Some of your suppliers or venders might be willing to contribute dollars for a marketing or advertising campaign.  Often, a vender will offer to add your website as a link at their site, to help drive business to your door.  These are just a few FREE ways to cut your marketing expenses, and often increase your sales.

Entrepreneurs frequently reduce or eliminate their advertising and marketing expenditures in their early efforts to cut costs.  This is not only foolish, but will remove the business’ competitive edge from the public eye.  By carefully evaluating the ROI of these efforts, and finding as many sources to help support these expenses, effective programs can increase your bottom line, while your competitors have disappeared from the market place.

#3 – Renegotiate - times are changing
Be both dollar and penny wise!  Every vender contract is a target for renegotiation.  In today’s real estate market, landlords are facing rising vacancies and competition from other facility owners.  Look around your immediate vicinity:  are there special deals out there?  You will probably find many landlords are offering free rent for several months, move-in specials, tenant improvements and other perks.  Don’t hesitate to point these out to your landlord!

#4 – Untapped Sources of Revenue – don’t leave any stone unturned
Your Balance Sheet can often be a source of revenue.  Do you diligently work your accounts receivables?  This is unrealized income!  All of your customers who carry a balance due with you need to be contacted during the first quarter of 2010.  Revisit with them agreed-upon terms, and establish your expectations.  For over-due accounts, set a repayment schedule and negotiate for early settlement. This will force THEM to also look at their cash flow. If you have to “discount” for payment in full, you will still have moved dollars from a dormant state to an income state, and have a year-end write-off.  Any capital equipment that doesn’t produce steady or acceptable revenue might be sold. Outsourcing some parts of production may have a better margin than owing the production equipment.  Consider leasing equipment instead.  Although you will move a balance sheet item to an expense on your P&L, it may be a better tax situation than writing off capital asset depreciation. Everything you own should be described in terms of ROI, not just as an asset.

#5 – Your Banker – your best friend
A clean and complete set of books ready to show to your banker by January, is a necessary goal. We all hear that credit is not readily available, but don’t use this as an excuse to ignore your bank.  Make an appointment at an early date with a bank officer to review your P&L, Balance Sheet and Cash Flow Worksheet.  Take your business plan, marketing plan and advertising collateral with you.  While visiting your banker, ask him to go to your website so he can look at that, too.  Build a good relationship now, so when you are in a position to apply for a loan, he is ready to talk.

Going into the second decade of this millennium will require small businesses to go back to basics in managing their finances.  We are the major source of jobs, provide the largest source of revenue and contribute the biggest tax dollars. Only by concentrating on our numbers will we succeed.

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