Ok, so this might be therapeutic as this is a situation I am starting to know all to well.
Your good idea became a good small business. Your client base grew. You had more cash in the bank then ever before. Then you start spending…
A bigger office, a bigger staff, more office equipment and supplies, everything starts to add up in multiples. All of the sudden everything has an extra zero on the end. Your gut is telling you this has to be a good problem. There is more work and more invoices as well as more bills. It is growth, I know, but it is just as hard to continue to succeed once you have started to succeed.
Your businesses balance sheet is now just as important as your P&L. You find yourself watching your receivables as much as billing. But, you have to get over the hump!
Are you really making more money? Just because more is coming in and out are the margins the same or better? It is a hard reality to look at, but you have to break it down and often. You can easily hide you mistakes from yourself with cash flow. Look over your assets (including AR) and all your liabilities daily. It is simple math and only takes a minute to do with the proper information. Once a business has grown where you have cash-flow you can easily get into debt and trouble and not even know it until it is too late.
I hand write my balance sheet every Monday after running payroll. There is something about doing it by hand for me that makes me feel more connected. The information is all perfectly inputted into our general ledger software (QuickBooks Accounting 2011) and I could push a button to get a balance sheet, but the act is reaffirming.
As long as I see the net worth going north and not south I know that the big picture is going the right way. I then break down my margins by client. This might sound over whelming but with the proper operational set-up you can capture the data easily. If my margins from client to client are not consistent then I need to ask myself why. I have learned more on how to grow from this act than any other process I do for the business.
Don’t forget to budget time to run your own business! I have had to become disciplined to run my own house. I look at other businesses numbers all day and jump on them about watching receivables. Sometime you have to take your own advice.
Next post… When debt is good for a small growing business. And why.