Ever wondered why your small business remains small after all these years?
Can’t stop thinking about the fantastic business venture you ran that died a painful death?
Is your business struggling to keep up with your debt and other financial obligations?
Are you getting frustrated that no banks or investors want to put any money in your business?
Perhaps none of the issues above apply to your business (thank God!), but do you struggle with the knowledge of what your business’ full potentials are?
If you answered yes to any of these questions, then you need to know about a concept I have nicknamed “BIGA for small businesses,” promise me you will not stop reading when I tell you that BIGA means Budgets, Internal Controls, Good Records and Analysis because it is actually not as complicated as it sounds, laughs!
I know these things sound like issues you pay your accountant to handle if you can afford one because you probably don’t like dealing with numbers or would rather just focus on your business not the numbers, but they are issues you need to understand if you are passionate about your business and will like to build wealth through it. Think about it this way: irrespective of how high or low a small business owner’s bank balance is, their face will most likely light up when they are talking about their products or service because in most cases, people start small businesses because of a passionate connection to the product or service. However, more than half of those happy business owners cannot clearly tell you what their financial goals are, how setting the prices they charge or how making other financial decisions can get them to those goals. This is why one of the top ten reasons small businesses fail within the first five years is lack of financial awareness on the part of the business owner.
But don’t worry because our financial coach will get you started on the right path, I will explain these concepts in ‘user friendly’ terms in this article, and we will go deeper in subsequent editions until you know enough to ask the right questions, set the right prices, assume the right obligations and most of all make smart business decisions.
B – Budgets
Got a Flight Plan? Running your business however small without a budget is like flying an air plane to ‘no where’ destination. If you won’t board a plane whose pilot tells you he has no flight plan, why should you expect someone to invest in a business that has no goals, i.e budget? A lot of people run away from building budgets because they assume it is this big complicated process that requires an equally complicated system to execute, this is not the case. A budget is simply a documentation of your expectations and aspirations in numbers. One of the common pitfalls preparers encounter is that they build unrealistic budgets that do not reflect reality or leave room for the unexpected. If your business is new, look at what similar businesses are spending or selling to give you an idea of what might happen to yours. For veterans, look at prior period activities to make accurate predictions for the future. Most of all, do not simply leave your budget to gather dust throughout the year, ensure that you constantly compare actual results to your expectations so that you can make timely changes.
I – Internal Controls – Got good brakes?
Do you sign all checks issued by your small business? Do you keep your check books in a secure location? Do you prepare bank reconciliation statements to catch mistakes and unauthorized transactions? Do you perform a routine count or observation of your inventory? These are examples of internal controls, which are as essential to your business as good brakes are to a car. You have to consciously think about what can go wrong e.g. fraud or theft, and ensure that you put simple checks in place to reduce or eliminate the risks your business faces. You do not want to be that business owner who is working hard but has a display sign that reads ‘open for robbers’. Internal controls are simply putting procedures in place to protect your sweat.
G – Good Records – What’s really happening here?
Keeping good records is essential to business growth, you should make a habit of recording details of all business expenses and receipts otherwise it is impossible to know how well or poorly your business is performing. There are several easy electronic tools such as Microsoft Excel and Quick Books that can make this task easier nowadays, the tool you select should be based on ease of access, size and complexity of your business. There is hardly any investor who will take you seriously if you don’t have financial reports however great your idea is. What you are saying to the investor is that you don’t really care how your business is doing but you want his or her money anyway, so you are setting yourself up for a rejection.
A – Analysis – Did we make it to the finish line, Is the price right, Is it the right size?
Analysis is simply asking the right questions about your business performance. You should review your records monthly, quarterly or yearly to see if you are meeting the goals you set at the beginning of the year (don’t let your budget gather dust on the shelves), check that you are pricing your products correctly, that your stock (inventory) is not just gathering dust instead of moving into customers’ hands and most importantly check to see that your business is growing and you are making profits. Analysis helps you stay focused on your goals and steer you in the right direction if there is a problem. In short, it is like the check engine light that comes on in your car prompting you to pay attention.
Want to learn more about BIGA and how it can take your small business to the level you dream about? Subscribe to updates on this page for future articles and send an email to firstname.lastname@example.org if you would like a coach to hold your hand till you become a pro!
I wish you great success!