Not until you get your financial ducks in a row
You had an idea. Just a germ, a spark. So, you threw caution to the wind and started a company. Things are going well. Really well. Maybe it’s time to give yourself a little reward in the form of a raise.
Not so fast.
Before you carve off a larger slice of the pie, make sure your financial house is in order. Cash flow, projections, reporting, and more all need to be in line and on track to ensure that a bump in your salary now won’t cause bumps in the road later. Consider these points before you act:
Cash is king
Sales numbers on paper can tell great stories about your company. They can also tell you lies. When cash in the bank doesn’t keep up with the cost of operations, trouble lurks around the bend. There’s a reason why 20 percent of new businesses fail in the first year, 34 percent in the second, and as many as 50 percents in the third: lack of cash.
When you maintain a clear snapshot of your cash flow at all times, you have the dexterity to change course at a moment’s notice, pounce on new opportunities, optimize growth, and achieve stability in the process.
The best way to do this keeps your books in order (or hire someone who can). Invoices, collections, payments, and other processes are all potential holes in your cash flow if they’re not managed with precision.
Alongside an ironclad grasp of the present should always be a sensible view of the future. It’s great to think big, but overly optimistic cash flow projections can be as dangerous as shoddy accounting practices. Spin out those dreamy mission statements to their logical conclusion and make sure the resources are in place to take you there.
And no matter how robust your cash flow seems, keep a rainy-day fund in your back pocket. In today’s volatile political and economic climate, cash reserves can provide peace of mind to staff, investors, and the little voice in your head that keeps you up at night. Two to three months of operating expenses are a good starting point.
The price is right
This may go without saying, but the amount of cash that flows into your company is directly related to how you price your product or service, and, therefore, how likely it is that a raise is in your future. Price too high and you could lose market share, price too low and you could leave money on the table.
Know your place in the market. Does your company solve a special problem or fill a unique role in your industry? Make sure you price high enough. Do you instead intend to penetrate a crowded market with efficiency or novelty? Price competitively to undercut the competition. Bundle pricing, price skimming, and other strategies can find the sweet spot that grows your bottom line.
Stick to the budget
One of the best ways to ensure your raise is to be evangelical about creating, updating, and sticking to a budget. It can seem daunting, particularly when you have more (seemingly) pressing concerns at hand, but give the budget a little TLC now and avoid those OMG moments later.
A budget doesn’t have to be a dull, restrictive document. When done right, it is a living, breathing reality check.
Integrate it with the four M’s – Money, Manpower, Marketing, Making it Happen – and you’ll be on the right track. Things change often in a successful business – and fluctuations in payroll, marketing, and sales are to be expected – so don’t be intimidated by the need to keep it current, at least monthly. In the end, it’s small work for big returns.
Without this guidepost, key business decisions rely on intuition rather than solid numbers. This not only hurts current operations but endangers the future. Potential investors, bankers, and buyers will doubt your credibility and have little reason to trust you with their money – particularly if you plan on taking a larger portion of it for yourself.
Measure the right stuff
So, you have a nifty new budget and you keep it up to date. But a budget is only a first step to that raise. You need to measure KPIs (Key Performance Indicators) to see if your team all pulls in the same direction to achieve the budget’s goals.
Put simply, KPIs clarify, cut through, and capture the essence of your company’s mission. They keep your staff on task and on the brand. They simplify the at times the dizzying complexity of daily operations into a handful of achievable goals. And they can sound an alert when the ship is about to hit an iceberg.
Be patient and the raise will come
That idea you sparked many months or years ago is still on the horizon. Tread carefully, show patience and restraint, and you will see the windfall.
Profit Point Consulting’s mission is to accelerate the growth of small and medium-sized companies through sound, strategic advice, and proactive financial management. If you need a trusted advisor to help develop and execute your vision, call us at (973) 659-1430 or fill out our contact form.