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Ask Dave

Small Business Baby Steps

Something is going wrong with Donna's small business as they try to get the Baby Steps running on it.

QUESTION: Donna is working the Baby Steps, and she and her husband have a small business. They are trying to get the Baby Steps working on the business, but it’s not working. She’s getting frustrated; all the money goes to companies that send then invoices. Dave knows how to stop the money losses.

ANSWER: You are trying to pay bills without a plan. Make a simple list of the incoming invoices before they get there. A budget is projecting into the future what’s going to happen before it happens, just like what you do with your bills at home. If you look at your company and decide to order supplies of $30,000 and it’s going to be through 7 different invoices, order it in March and pay it in March. You know as you order them that there will be an invoice coming. You need to have a better system where you know what you are ordering. You are reacting rather than proacting.

With your numbers, do a budget based on $10,000 worth of sales. Based on $10,000 in gross revenues at the top of the page, you know you have a payout of salary, rent and what you need to order in product. You know your cost of goods sold, so you’ll be able to build your March budget pretty close to the actual numbers before March gets here. Above that, you just say that any other profits we have, given the month and the cost of goods sold in that month, set aside the correct amount of money for retained earnings or to reduce debt with, or some reserve cash to cover you in a down month.

You’ve got to stop and make yourself look into the future and see where the money is going before the money leaves. You need to prioritize.