Profit Lessons I've Learned…

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This week, I’m sharing lessons that I’ve learned during my five years as a small business owner.  On Tuesday, we discussed Productivity Lessons.  Yesterday, we talked about People Lessons.  Today, we are going to break down Profit Lessons I’ve learned.  These are the lessons I’ve learned about business finances.

1 – Find a System that Works for YOU!

A lot of people’s accounting problems stem from disorganization of paperwork.  You need to find a system for keeping receipts, invoices, and statements nice and neat.  We’ll be having a series on organization, so I won’t delve into that too much.  But, think about how you are going to keep everything in one place.  Will you use file folders labeled alphabetically? By month?  How often will you sit down to do your accounting?  Will it be weekly? Monthly?  Can you commit yourself to a day and time systematically?  What software will you use?  What is working with your current system?  What is not?  The more disciplined you are with your organization and your tracking, the easier your accounting will be.

2 – Know your Numbers

I’m going to say it again: hire an accountant for the dirty work (taxes and complicated accounting issues).  But, KNOW your numbers!  If you aren’t on top of your dollars and cents, then you aren’t on top of your business.  Take time to learn the basics of how money flows in and out of your business.  You are a business owner first and a (    fill in the blank     ) second (in my case invitation designer.)  It’s understandable that you may not feel comfortable with numbers (many people aren’t) but you can educate yourself.  That is the beauty of the world we live in!  Take a class; read a book.  Learn what the numbers are telling you.

3 – Take Care of Yourself

I’m going to share with you one of the mistakes I’ve made as a small business owner.  In my third year in business, I made the leap to move my business out of my home and into a beautiful studio in the Capitol Hill neighborhood of Seattle.  I LOVE my space.  In my eagerness it the beautiful office that it is, I reinvested most of my income back into the business.  After all, that’s what all small business do, don’t they?  They pour their money right back into the business so that they can grow organically, right?  Well, not necessarily.  First, they take care of themselves.  You must pay yourself, and save for a rainy day.  Then they invest in their business.  If you can’t do this, then rethink your strategy (hint: look at your numbers)

4 – Cash is King

Now, more than ever, we realize what this means.  In this economy, the businesses that have the cash are the ones that will make it through.  If your cash is tied up in making debt (credit line, business cards, loans) payments every month, then you are going to have a tough time investing in yourself and the business.  What I’ve taken from the 2009 recession is that whenever I have an opportunity to squirrel away some cash I do.  A few weeks ago, I had 4 nice contracts come in completely unexpected (they were all last minute fall weddings – yahoo!)  Since I hadn’t planned for that, that money is serving as a cushion for any unexpected slow-down in the months to come.  This recession is not over.  So, when you get those little windfalls, squirrel it away.

5 – A Tax Deduction = Business Expense = Less Income = Not Always a Good Thing

Be very careful with thinking that business expenses are a good thing.  Yes, you get a deduction from the IRS.  But, this is still a hit towards the profitability of your business.  And, if your business is not profitable you won’t be in business long.  I see too many small business owners charging dinners and networking events with the thought that “this is a tax write-off”.  The next thing I hear is that they are having problems paying their rent.  And, the government isn’t going to give you a refund big enough to make up for that.

And, with that… may you prosper!