Six Steps to Fiscal Fitness

Having a business that’s operating on sound business principles is absolutely essential if you expect to build a thriving business. One of the key elements of a strong foundation is fiscal fitness. A business that tries to grow without a strong foundation is heading for disaster. If your business isn’t “fiscally fit” – you might eventually find yourself dealing with that other “f” word – “failure”.

We all know the value of physical fitness. Well, the same principles apply to fiscal fitness. As with physical fitness, it’s good to start with some measurable goals; then create and act on a plan to achieve them.

Being able to meet expenses when due, without borrowing, is a measurable goal worthy of your efforts. The key to meeting this goal is effectively managing cash flow. That probably means pumping up income and slimming down expenses. You need to know the measurements that are meaningful to your business and then weigh in on a regular basis to see how you’re doing.

Here are the six steps I recommend to achieve fiscal fitness for your business.

1) Start with a well- calculated plan of action; then follow through.
To get physically fit, the steps are: determine where you are right n0w, set goals to achieve within a specified time, create a strategy to keep moving toward your goals; then put together a plan of action that will put you on course and help you continue to progress. The same is true for fiscal fitness. You know all this, of course, but are you actually following through?

The following steps are designed to help you follow through with your strategy and encourage you to stick with your plan.

2) Earn more.
Well, of course you want to earn more. To actually make that happen you need a strategy and plan specific to that goal. In order to create a viable strategy you need to know what you’re earning n0w. Take a look at your income on a month to month basis. Is there a cycle, a trend, a signal that income is a declining? No business can stay alive without income and cash infusion on a consistent basis. In order to increase pr0fit, the formula is: increase income and reduce expense.

What is the income you need on a regular, monthly basis to stay up with and surpass your expenses? One of your most critical challenges is calculating a plan to keep income ahead of expenses.

David is a musician and teacher. He had a large outstanding debt that had gotten out of hand. In order to reach fiscal fitness, he started with an assessment of where he was and where he wanted to be. By considering the gap between the two, he was able to set short term goals and create a marketing strategy to fill his lesson schedule. He put systems in place to bring in and support the new business and began paying off his debt and saving a small amount on a regular basis. Within 6 months David was able to raise his lesson fees because he had more business than he could schedule. His pr0fit margin was way up because he had been able to add business at a relatively inexpensive cost. He had his business working for him, rather than him working for it. That’s a fit business.

3) Spend less.
In order to cut expenses without hurting your business you want to look at each expense and determine if it is taking you closer to your goals. Even consider your fixed expenses. Do you have unused space that could be sublet to someone else? If so, that might be an offset to your rent expense.

I’d suggest you go through your monthly expenses with the question in mind as to how each is leading toward production of income. It’s been a real eye opener for quite a few of my clients. Think frugally. Spend less on non-income-producing items. Spend more where the return on investment will be higher.

Charlene was able to restructure her whole maintenance business by taking a hard look at her expenses. She saved thousands by discontinuing a sales campaign that wasn’t working and by subcontracting some additional staff rather than hiring. She also was able to expand her market through some of her subcontractors. She realized a 10% increase in her bottom line with these actions.

4) Monitor your financial results regularly.
Just as you’d measure your waist and get on the scales periodically, you want to know how you’re doing financially. That means looking at your basic financial statements monthly. These are your income and expense statement and cash flow report. It’s a good idea to review you balance sheet at least quarterly. Consider these as your report card. If you’ve taken specific action to increase your bottom line, the numbers will tell you how well you’re doing.

When an expense is required to carry out your plan, make sure you have adequate cash available to carry you until the resulting income starts coming in. By planning your cash income and expenses on a monthly basis, you can prepare accordingly. We all know there are often unexpected expenses, but when you are proactive instead of reactive, you have better control.

Romulus is a software developer who had a substantial income, but often had to borrow m0ney to meet his payroll. He couldn’t stay ahead. One of the things he learned from his monthly financial reviews was that billing and collections needed to be improved. By reducing his receivables another 16 days and delegating more, he was able to eliminate the need to borrow. His income and bottom line improved as well.

5) Stabilize Cash Flow.
Cash is the lifeblood of your business. Some businesses are more prone to cash drain than others, but you won’t reach fitness until your income and expenses are reasonably predictable. Many times you can significantly improve cash flow by setting stronger credit, billing and collection policies, restructuring inventory management, creating a more predictable source of income and selectively cutting expenses.

Andrew is an attorney who specializes in private financial placements. His business and income were sporadic. His income was unpredictable, but his expenses were steady. His c^sh was difficult to manage. Once he realized his real value was filling the role of legal and business adviser to firms that didn’t have staff counsel, he was able to convert 80% of his income to retained services. This gave him the stability of income he needed to bring cash flow under control.

James is an accountant with a growing tax practice. From his assessment he found out his billable hours were well below what he projected they should have been considering the total hours worked by staff. By helping each person set their billable goals and then report and monitor their own billable hours he was able to immediately increase his revenue without adding another dollar to the expenses.

6) Stay Nimble.
Being the primary decision-maker in your business you have the authority, and the responsibility, of keeping the business on course. Because you’re observing what’s happening in your business on a regular basis, you’re able to make critical decisions easier and more quickly.

When the rough seas of the marketplace and the economic environment toss you about, you can make a good decision with confidence. Since things don’t always go as planned, keeping yourself informed will allow you to make adjustments as needed.

Gail is an excellent example of a sole proprietor who found a creative way to keep her business going following the 9/11 attack on the World Trade Center. She’s an alternative media marketer who sells placement of those mail inserts that sometimes catch your eye. She also sells lists for direct mailing. With the anthrax scare many of her mailing list clients were reluctant to make new commitments. So she suggested they convert to postcards, e-mail and magazine, catalog and product inserts – anything that doesn’t come in an envelope. Her clients found this creative and cost-effective. It kept her business from stalling. She even developed some new business.

Kim is a massage therapist who, prior to the World Trade Center (WTC) attack, ran her massage therapy practice from her apartment in Battery Park City, a large housing community across from the WTC. A good many of her clients worked at the WTC and in the surrounding buildings. Her apartment had been damaged so badly she could not reoccupy. Her business was demolished along with the buildings.

Within 3 weeks of the tragedy she was back in business. How did she do it? She temporarily moved in with relatives and found a space to sublease in a Wall Street building where a company had recently cut staff. They were happy to have the extra income for empty space. She was also able to negotiate a great rate by offering to barter services with them. As an incentive to get business she offered an extra half-hour with each massage booked. She provided a much-needed service and managed to create a short- term plan that quickly rebuilt her client base.

These people were nimble. Their stories show that good business decisions can be made based on all the facts and realities. They each had relatively stable and fit businesses before the disaster. Each faced their challenges and came up with a strategy and plan to move beyond them.

If you want to grow your business this year, now’s the time to make sure you’re fiscally fit.

Your Assignment: Create a fiscal fitness plan for your business.

Start by doing a systematic assessment of where your business is at this point. Look at your strengths, weaknesses, opportunities and threats (SWOT) and don’t forget to review your financial statements.

Set measurable fiscal goals to accomplish within a specified time period. A quarter (3 months) is a reasonable. Then make specific plans, and most importantly, carry them out and regularly monitor the results.