Do you run your business with a close eye on your financial situation? You should. In our industry, revenues typically fluctuate from month to month. Since we may often have months with little income – holiday and vacation seasons are prime examples of such time periods – and others with a higher level of activity and revenue, it is absolutely essential to plan ahead to ensure financial stability.
Today’s tip covers three very essential parts of business planning: forecasting, budgeting and monitoring. In addition, I’ll describe a couple of financial term you must keep a very close eye on: cash flow and balance sheet.
Did you see any fluctuations in 2010 or was each month about the same in terms of income and expenses? Did any particular event or cause factor in as to why you noticed an increase or decrease in your business activity? Was it due to a marketing campaign that your business increased, or was it demands from an outside activity that caused you to spend less time on your business and therefore realize a decline in revenues?
Based on prior year and years, take a look ahead at the 2012 landscape, month by month, and assess whether there’s likelihood one month over another will be more successful. Once you’ve determined what your new year might look like in terms of financial mountains and valleys, it’s time to prepare a budget.
Identify the overhead costs you carry every month regardless of whether you receive income or not. Expenses may include costs for car, home, computer, general marketing expenses, Internet access, etc. Project related expenses will likely include furniture rental, purchase of accessories, property-specific marketing, transportation and any other costs you will only realize when you’re hired for a project. Once you’ve created an outline of the revenues and expenses you expect in the coming year, separate them per month and create an anticipated monthly budget.
Throughout the year you should set specific milestones to make sure you’re on target to reach budgeted revenues while also ensuring that you’re staying within your allocated expense level. Many fail to continually make updates and adjustments to a budget and will therefore end up in red before the year is over. Following your budget closely will enable you to make sure all your most important activities, including ongoing marketing efforts, will last throughout the entire year.
Here are a few things to consider as you begin a new year
In short, a cash flow statement outlines your liquidity at any given time. By monitoring your cash flow, and especially looking ahead each month, you can make sure that your first never runs out of liquid cash.
A balance sheet is often referred to as a snapshot of a financial situation of a company, and it’s divided into three parts: assets, liabilities, and ownership equity. The correlation between the three can best be defined as
Assets = Liabilities + Equity
The formula above shows how assets were financed – either by borrowing money (liability) or through the owner’s money (equity).
The main difference between the balance sheet and cash flow is that while the balance sheet shows assets, often those aren’t easily converted into cash for any immediate needs. You may hold inventory in your asset category that can be turned into cash, but may not quickly. That’s why both the cash flow analysis and balance sheet and equally as important to watch closely throughout the year.
We at Stagedhomes.com are committed to your success, and that includes making sure you have the guidance you need to run your Staging business. Since the early 1970s I’ve developed materials I know are both essential and helpful to ASPs® as they build and grow their businesses, and a in the ASPM® training we go further into teaching business management.
Visit the Staging University at Stagedhomes.com to discover the vast resources available to you.
Dedicated to your success, all the best to you and your family in 2012!
Barb Schwarz, ASP®, ASPM®, IAHSP®
The Creator of Home Staging®
Founder and CEO,Stagedhomes.com
Founder and Chairwoman, IAHSP and the IAHSP Foundation