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Techniques for "Following the Money" Effectively in Business

following-the-moneyGrowing your new business to a state of profitability and sustainability is a grueling task. But with hard work, and the right approach, it is far from impossible to achieve. In this post, we’re going to look at some techniques for “following the money” in business: focusing on the bottom line so that your business can achieve the growth it needs to succeed.

Follow the Money

You may have started a business because you wanted to be self employed doing something you enjoy, but if you’re going to have any sort of long term success, it’s important to find a balance between managing the service your business offers, and managing the underlying financial forces at play. This means the business owner must know their costs, their prices, their competition and their industry. Entrepreneurs need to focus their efforts on the things that make money for the business.

What Is the Importance of Knowing Your Costs and Prices?

The best businesses are run from a written, regularly updated business plan, marketing plan and budget. A business’ costs and prices are perhaps the two most important figures in formulating any business plan.

Your cost is the amount of money you must spend (on inventory, marketing, payroll, etc.), while your prices are how much you are charge clients using your business. In order to turn a profit, of course, you must be able to bring in more money than your business spends. Thus, knowing your costs is the first step in determining your business’ prices. Make sure you keep regular, defensible, financial reports for your business that account for every dollar that comes in or goes out.

What Is the Importance of Identifying the Competition in Your Industry?

Small businesses cannot compete on price. This is a fact of life. Due to economies of scale, any larger competing business will be able to undercut you on price. Small businesses can’t compete here. Walmart will always have a cheaper TV than a local electronics shop, for example. When a small business tries to compete as the lost price or low cost provider, they wind up not making enough to cover all of their needs plus profit plus reinvestment and funds for future growth.

Instead, small business must compete on value. That means you have to be able to clearly and easily articulate your value strategy in terms that show benefit to the customer — and do it quickly — you have maybe two minutes of potential customer attention span during which you must deliver a message that resonates enough that the potential customer is interested and asks more questions.

There is the difference between “be”-ing the business and “build”-ing the business. The role of the entrepreneur building a business is to develop systems and delegate, eventually creating a business that can be run without the owner.

Understanding how to follow the money in your industry is the first step you must take to building your business, and achieving its long term goals.

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The Oregon Small Business Development Center Portland Community College has  helped thousands of businesses over the past 30 years. We combine one-on-one  advising with programs taught by business experts, giving our clients the  resources they need to grow their businesses. We’ve celebrated many successes  with our clients. We'd love to celebrate your success.   

Topics: Professional Development, Small Business, Growing a Business

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