Expert Reveals 3 Financial Habits for Business GrowthÂ
Good financial habits can accelerate your small business’s profitability exponentially. We had the exciting opportunity to sit down for a quick chat with Kirk W. McLaren, best-selling author and CEO of Foresight CFO, about the three financial habits your small business needs. Watch the exclusive Master Class now.
3 Financial Habits of a Profitable Business
1. Use a Monthly Financial Like a Scoreboard
The first good financial habit is to treat financial metrics and reports in the same way a scoreboard is used in sports to track:Â
- PerformanceÂ
- ProgressÂ
- Areas needing improvement
Start with your Profit and Loss (P&L) statement and key metrics that are important to your business. They’ll offer immediate insights into your organization’s financial health and operational efficiency. You can then use those financial indicators to make informed decisions, adjusting strategies when needed to improve performance.
They also serve as clear benchmarks to help motivate staff to achieve – making them accountable for their contributions to the company’s financial objectives.
The key takeaway for this habit? Always know where you stand financially. Making this a good habit will likely be an evolving process for a while for your business, but it’s well worth it.
2. Achieve Positive Cashflow
For every dollar you increase in cashflow, you increase the value of your company by some multiple. How can you start doing that? Use Kirk’s 2-part strategy.
Part 1: Have a 12-week Cash Forecast
Understanding your 12-week cash forecast gives you short-term visibility and the ability to proactively make decisions. It’s especially helpful to your small business if, say, you know you’re going to be short on cash two weeks from now. Knowing exactly how much cash you have coming in and going out gives you the opportunity to:Â
- Pay for things faster or slower, as needed.Â
- Collect cash due in, proactively.
Part 2: Master Your Cash Conversion Cycle
It’s important to know the answers to questions like:
- How long does it take me to class and invoice a commodity?
- How long does it take me to take inventory?
- How long does it take for payable/payroll?
Benchmark the data you collect for your industry. Then compare your total cash conversion to your benchmarks. You can quickly gain peace of mind that you can make payroll, for instance.
If you find that your company is falling short of the industry standard, ask yourself why. What are they doing differently? What can you learn from them?
3. Create Your 12-month Plan (Budget)
Develop your 12-month plan and figure out where you want to end up. Then, get into the nitty-gritty. Break it down month by month to find out what your goals are for the year. Do you know how you’re going to accomplish each goal?
If not, do some brainstorming. Determine what you might need to do – whether that’s client acquisitions, investments, or whatever is needed. Once you have that information, it’s time to put it all into action.
The things that you identify as your best course(s) of action to reach your goals become your measurables. Then, implement habit one – your scoreboard – to see if you’re over or under where you want to be at key checkpoints. And don’t forget to keep everyone involved.
Make sure your staff have daily access to the actions they control so they can see their progress. This will help boost your staff’s alignment with the company’s overall mission and set them up for successfully reaching their individual goals.
About Foresight CFO Services
Foresight CFO is dedicated to fostering a growth mindset within your organization, offering hands-on expertise and accountability. Their mission is to support your business’s development and help you capture opportunities beyond the reach of your in-house capabilities.
Learn more about how Foresight CFO can contribute to the growth of your small business.
