Most new entrepreneurs aren’t financial experts, so when they start their business, they may not know the best ways to manage their money. However, it’s important for business owners to make a financial plan and learn about best practices to set themselves up for success, both now and in the future.

In this Roadmap for Rebuilding event, Jeanette Mulvey, editor in chief of CO— by the U.S. Chamber of Commerce, spoke with a panel of business leaders and finance experts to get their insights on financial planning for small business owners. Follow their tips to map out your company’s financial future and ensure you have adequate cash flow to not only keep your doors open, but flourish and grow.

Identify what is driving revenue increases

When tracking their finances, most business owners turn to their standard financial statements like cash flow, net income and profitability. However, it’s important to also understand the key factors that are unique to your business.

“It's one thing to just look at your bank account and the balance … but I think it's much more important to truly understand what's driving that increase,” said Tom Kelly, director of analyst relations at Oracle NetSuite. “Make sure it can be distributed amongst the workforce so that everybody has something to do and knows that their actions are making an impact on the positive projection of the business.”

Knowing you have more revenue will not be helpful if you don’t know what’s driving it — especially if you’re not considering the whole picture.

“Just having more revenue doesn’t mean you’re a profitable business,” Kelly added. “You could have a lot of revenue, but if you have exorbitant costs, you’re not making any money.”

Having key insights on what you should focus on, as well as knowing your industry and its ebbs and flows, will help you understand where your business stands and where you should increase your efforts going forward.

Know exactly what your costs will be

As you’re forecasting your income and expenses, it’s important to keep a close eye on your operational costs. According to Mowa Haile, president of Sky Blue Builders, knowing your costs is particularly important from an annual planning perspective.

“As you grow, you have to learn to manage your business by the numbers,” said Haile. “[If] you don't know what your costs are, then you're not really doing a good job of running your business, especially now with the pandemic. Whether it's material shortages [or] labor costs ... increasing ... [you] have to pay attention more to those metrics than ever before.”

Just having more revenue doesn’t mean you’re a profitable business. You could have a lot of revenue, but if you have exorbitant costs, you’re not making any money.

Tom Kelly, director of analyst relations, Oracle NetSuite.

Keep track of your inventory numbers

Managing inventory can take up a lot of time and resources for small business owners. That’s why Nikki Riojas, owner of Made in Corpus Christi, advised looking at numbers when it comes to inventory.

“I look at my numbers a lot,” said Riojas. “I'm constantly looking at what our most popular products have been and what we should plan for for the next year. How much should we order? We were looking at maybe a 20% to 25% growth from last year and that number actually tripled this year.”

For Riojas and her team, sourcing all their products from local vendors gives Made in Corpus Christi a unique advantage in terms of inventory and supply chain management, something many businesses are currently struggling with.

“It's a little bit easier for us to go to our local vendors and say, ‘Can I have more product?’ versus if we were to be sourcing things from outside of the state or outside of the country,” Riojas noted.

Tie your business investments to success metrics

Investing in your own business is key when you’re trying to grow and expand. Stephanie Sims, founder of Finance-Ability, says entrepreneurs need to shift their mindset about spending money and start thinking about every business expense as a potential investment in your future.

“Start to think about everything that you do in your business as an investor,” said Sims. “That way, you can make your resources go a little bit further and see ... where you're getting success in your business.”

To do this, Sims recommends connecting every investment that you make in your business to a “success metric.”

“Say that you're going to invest in a platform like Shopify,” she said. “How do you know that Shopify is going to help your business concretely? Is it going to help you process orders faster? Is it going to help you reach more clients? When you start to connect those success metrics … it allows you to be sure that you're investing in the right things in your business.”

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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