If you are self-employed, I have great news. The most effective ways for you to improve your business are often free and very easy to implement.
Here are 6 ideas you can put to work starting today:
1. Interest expense
You may run a business that needs credit in order to operate but that doesn’t mean you should become complacent. If you do, it’ll cost you. A friend of mine makes small business loans to people who didn’t plan ahead or consider other alternatives. He’s rich, and they are basically working for him. Here’s how it works.
A pizza parlor owner needs $5000 for a new oven. She figures she can earn $500 a month on that new oven, so every day she waits costs her a lot of money. She calls my friend and he charges her 20% for a loan that she must repay within 12 months. She figures she can earn 10% a month on the money, so 20% a year is nothing – even though she could have take steps to get cheaper money. She takes the loan and my friend eats her lunch – a large mushroom pizza.
The pizza parlor owner is smart for taking out a loan, but dumb for taking this one – unless it was the only one she could get. The best way to avoid getting jammed up on interest expense is to take a few precautionary steps.
First, have loan sources lined up before you need to borrow money. Look into having a credit line on your business or home well beforehand. If you borrowed money for your business over the last 2 years, chances are you’ll borrow money again. Find the least cost alternatives and set them up now.
Next, if you are currently in hock, do everything you can to get out of debt. This will help improve your credit score and make it easier and cheaper to borrow money next time you need it. Take action now.
I’ll admit that, for many years, I didn’t keep good books for my business. That was a huge mistake and a big opportunity I didn’t take advantage of. I could have benefited by looking back at those numbers now. Fortunately, I did start getting serious about bookkeeping about 15 years ago, and it’s been a huge help.
Never run your business through your personal bank accounts. It doesn’t matter if the bank is going to charge you extra for a new account – pay the expense. It’s worth it. It will be easier to track everything, and you must do that if you want to know if you’re profitable or not. Plus, it’s important to keep separate finances if you want to limit your personal liability.
Personally, I recommend using Quickbooks, but it’s certainly not the only small business accounting software out there. Make sure you keep your books up to date and download all the data. Also, I recommend doing the bookkeeping yourself. There is no better way to keep you fingers on the pulse of your business than by doing the books yourself and seeing where the money is going.
Bookkeeping is the main ingredient for small business success. Without it, don’t be surprised if you find yourself with business trouble and IRS tax debt. Ouch.
Even if you are very young, start thinking about the future and set up a small business retirement plan now. The years slip away and you can take advantage of that by growing your money tax-deferred even if you start out with small amounts.
Besides tax deferral, there is another big reason why retirement accounts for self employed people is super important… Over the last 27 years as a professional financial advisor, I’ve found that people tend to accumulate their financial assets in retirement accounts. Can you guess why?
It’s because money in retirement accounts is difficult and expensive to spend. Faced with the prospect of paying 10% penalties on top of income taxes on early retirement plan withdrawals, people tend to do without. This isn’t the case with non-retirement money. That cash sitting in your checking account is screaming out to you “spend me! spend me!”
That being the case, the more you put in your retirement accounts, the less you’ll spend. Put as much as you can into retirement accounts starting now.
Besides bookkeeping, you need sales in order to grow your business. In order to make sales, you need to have sales and marketing skills. While I can’t go into these two subjects in depth right here, I can remind you to do one very important thing.
Write down everything you do during the day for the next 3 days. How much of that activity was in a sales conversation? How much of it was spent marketing? Most people don’t love these activities so they don’t do them. We easily find other ways to fill our days doing things that may be important but are still less important than these two critical success factors.
If, after you complete this exercise of writing down your activities you realize that you are spending time away from marketing and sales, hire people to free up your time. I have one virtual assistant and one office staff person. On top of that, I have vendors and contractors. Each of these people do things I could do. It’s just that I can pay them less than what I could earn with the time they free up for me.
Are you doing too many things yourself and not hiring enough people to help you? You’ll know once you write down everything you do over the next three days.
5. Spending time and money
You have to spend money and time to grow your business. But are you investing these assets wisely? For example, social media marketing is really popular… But is it effective for you?
It took me two years of working on my blog before I started seeing a return on my investment. I didn’t really start it as a way to market my business but, had I done so, it would have been ridiculous. If my main goal is to grow my business, there are much more effective ways to do so than by starting a blog. Of course, now that I have an established blog, it’s a different story. But I think you understand my point.
Look at how you market your business. Is it the most effective use of your time and money? It’s fine if the answer is no. Just realize that if the answer is no, you should be engaged in those activities because you want other payoffs – not for your business.
6. Free priceless feedback
You can get the most valuable feedback for free from your clients and mentors. Getting objective reviews is critical in order for you to grow your business and to stop leaking money. Create a ten question document and give it to your best customers. Then, go over the document together. Ask them what they like and dislike about your company. Ask how you can improve. Find out what additional services they’d like to see you provide.
I have hired business coaches in the past and they have been useful. But in the end, the advice I’ve received seems to boil down to these six items. What other tactic would you recommend to help someone quickly put their small business on the path to success?
3 Responses to “Six Steps to Fix Your Business”
@Heather, good luck on your business.
@Tage – Good for you. I also think that everyone can learn and I’m of course glad the post was helpful to you. I also read posts about jobs/industries I’m not involved in but always come away with some value. Best of luck!
I am a new small business owner (opened in June last year). Don’t have any advice but wanted to comment so I can get notification of any other comments 🙂
I don’t have my own business, nor do I plan to in the foreseeable future. Either way, I still found this to be an interesting, informative post. Wasn’t too long to read, but contained some great thinking points. Good stuff!