Profitable
One of the obvious goals of every business is to be profitable. Despite this, there are some times when as a business owner you may end up taking a loss. To prevent this single loss from becoming a losing streak it’s important to understand the ways that your professional life may be directly or indirectly harming your personal finances. Here are 3 signs of trouble and how to fix them:
1. You run your business as a sole proprietorship: Sometimes in the desire to get a business off the ground, more attention is paid to the idea of running the business then to the legal business entity that’ll offer the owner the most financial protection in the event something goes wrong. For this reason, it’s unsurprising that so many new business owners choose sole proprietorship. However, it’s the worst option possible should anything go wrong because it leaves the business owner 100% liable and it’s not only the business accounts that are at risk. If you’re sued as a sole proprietor, it’s possible that everything you own will be up for grabs based entirely on how you legally own your business.
How to fix this: Talk to a qualified asset protection attorney who has experience with small businesses. This person will be able to best explain your options in terms of other legal entities and provide you with a comprehensive understanding of the pros and cons. While some options will cost more than others, they will also save you far more in the event that you’re sued/
2. You have a false sense of profitability: How much money are you actually making? This seems like a simple question but getting to the answer can be difficult. For example, if you have a business where you hand make products that you sell for $10, your profit isn’t $10 when one of these products sells, instead it’s $10 minus the cost of materials, labor, and any other expense that goes into production. This may not be a problem in the short-term but if you want to expand it could become an issue in the long-term because you’re not truly clear on how much your business is bringing in which could mean that you end up coming up short at a crucial time.
How to fix this: The easiest way to fix this is to be diligent about what you’re spending so that you can deduct that amount from what you’re earning. The resulting number will be your actual profitability.
3. You have a false sense of sustainability: It’s not uncommon when you first open a business to still have another job. Similarly, you may have a spouse or partner who contributes to expenses as well. This is normal however it can create a skewed sense of how sustainable your business actually is. Why is this a problem? Because, if the money from your job or from your partner is paying for vital things for your business on a regular basis then this means that your business isn’t profitable in a way that’s sustainable.
How to fix this: First, you have to figure out if this is actually an issue for you. Here’s a hint: if you already know that your business is getting regular cash injections to cover things like regular inventory and supplies or to cover the rent on a storefront, then your business isn’t sustainable. If you’re unsure if you may be in this situation then tracking your business expenses over 3 months and noting any time that you use money that doesn’t come from your business account to cover something will give you an idea. If you find that your business isn’t sustainable then it’s a good idea to rethink your business model and consider what you could do to bring costs down and profits up.
Remember that your professional life should be an enhancement to your personal life and not a hindrance. Don’t allow faulty finances to create a problem. Instead, seek out solutions that’ll keep you in business and keep you from going broke.