Getting a business off the ground and selling your products is the easy part... keeping that momentum and growing your presence in the market to keep your products and services flying off the shelves for years to come (remember that entrepreneurs dream??:), while scaling, is much more difficult. Maintenance for long term profitability of a business is very difficult and requires a certain level of discipline; stay grounded when it comes to your finances. In my years of business and ventures, watching businesses come and go, a lack of staying on top of key financial metrics is the one thing that kills most businesses. Being able to manage your finances- payroll, vendors and supplies, inventory, etc.- is a difficult part in any business for someone who has never done it. Many people are just not cut out for this, but as an owner, you gotta learn it.
Here are some of the basics. Handle them, stay focused on the bottom line and watch your business grow.
Employees & Payroll
Don't pay yourself much, if anything, the first one to two years in your business... I've seen first hand, businesses that go down because the owners start paying themselves way too much. Employees are the most important part of growth and scalability, and you want to take good care of them.
Pay your employees first.
This is contrary to what we learn from leading finance or wealth building gurus or seminars out there. These pros say, "you pay yourself first." That's bull shit, you pay your employees first. As an entrepreneur, your payout is long term.
In all the years that I have been in business, I have never missed a single payroll, even when things were tough. I can't stand it when I hear things like, "My boss gave me a check that I can't cash till next week." Big no-no in my book.
I've heard stories of businesses going under because they didn't have enough money to pay payroll taxes. To me, that's poor management. You've got payroll and every two weeks you know you have to cut checks to your employees. Then you have to pay your payroll taxes, and depending on your payroll amounts, they may be monthly , quarterly or yearly; whatever your situation may be.
What should you do? Open Two Accounts- one for business and one for payroll.
Let's say you have a bi-weekly payroll expense of $10,000, with an additional $2,500 in taxes, put the full $12,500 and deposit it into your payroll account, and forget about it. Yes, I know that you may not have to pay your taxes until later in the year, but ultimately, this is a payroll expense and you owe it. So many people get into trouble with this... and I'm even referring to large companies with several hundred thousands of payroll taxes they couldn't pay. This went on for several quarters, and they had to close their doors because they couldn't catch up. Don’t be that guy.
When to Start Paying Yourself
When you start having a little bit of success, you can start to take a salary and/or increase your pay. Stay away from the mentality of spending a little bit lavishly, thinking that things will always be on the up and up is not guaranteed. Be patient with yourself, a day will come in your business where you’re making a decent profit and you will be able to rake in the benefits for your efforts.
Capitalize Your Business
Something very important that people don't realize is that you have to capitalize the business.
Throw money in the bank!
It's great to have the capital there so you have the option to take on big exciting opportunities, even acquire other businesses that will help strengthen your business, or simply help you through hard times.
Track Your Performance
I run across people in my life who don't even know how to balance a checkbook. How are these individuals expected to run a P&L or a Balance Sheet for their business and know what to do with it? Listen, this may be a surprise to many of you, but I have seen people at large corporations that don't have an idea of how to read a P&L or how to properly calculate gross profits for their business. It's a shame, but it's a reality.
Schools need to do a better job of educating our children on how to balance a checkbook, how to manage personal finances. Teach them what a P&L and a balance sheet are. Teach them the basics on how to manage personal and business finances. Until that happens, it is up to you to learn. You will find people that are amazing sales people, technologist, and amazing operators, but they will forget about the most important vital sign of a business, your finances.
Finances in your business is like the blood that courses through your veins. If you don’t know the financial status of your business, you will F-N die. Pay close attention to those dollars, make sure there is a healthy flow, and you will have a thriving, profitable business. And remember, pay your self last!