Running a small business does not mean that you, the owner, can or should serve as Jack-of-All-Trades. That mom-and-pop-shop mentality can exhaust a business owner and potentially drive a small business into the ground. No one business owner should expect to know and operate every aspect of the business efficiently, effectively and profitably.
The logical alternative is targeting small business resources to maximize profitability. Small business owners should consider hiring resources outside of their company for tasks such as bookkeeping, monthly financial reporting, payroll services, and staffing.
3 Ways to Maximize Profitability
These three small business tips can help you avoid the mom-and-pop-shop trap and find reasonably-priced operational support.
1. Budget effectively
Careful budgeting can allow small business owner to contract resources outside of the firm's core competence. If you're in the middle of the fiscal year, it's time to plan your budget for the next fiscal year so that you can incorporate resources that ultimately help you operate more effectively.
Consider budgeting for the cost of payroll service, bookkeeping and reporting resources, as these time-consuming tasks take you away from more strategic—and revenue-producing—business planning. Be generous when you budget so that you have the funds to hire third-party resources to handle critical business functions that are outside your area of expertise.
2. Use accrual accounting
You want your company to play with the big boys? Get familiar with the differences between cash-basis and accrual accounting. Large businesses often use accrual accounting, because it more accurately depicts the financial status of the company and facilitates budgeting.
Let's say you own a multifamily property, and someone pays May rent on April 30. In accrual accounting, you book the income when it is due (the first of the month), not when it is received. This yields a clear picture of your monthly cash flow. If you book it when you actually received it, it inflates the April rent on the books and May's cash flow suffers by the rental amount.
If you're not comfortable with accrual accounting, refer to tip one and hire a bookkeeper. If you have a basic understanding of accounting, a good small business accounting software package can help with bookkeeping. Accounting software also has reporting capabilities to help you see the longer-term, big financial picture.
3. Don't be cheap
When we formed a small property management company nearly two years ago, our budget included hiring staff to run the properties. Initially, we budgeted and hired an entry-level leasing agent, mid-level maintenance person and senior-level manager. At the levels of pay we budgeted, our properties struggled to meet our expectations.
Lesson learned: staff your business with top-notch employees who do their jobs better than your competitors and better than you, and budget to reward them.
Shari Gould owns two limited liability companies that currently own multifamily properties in Texas, totaling 181 units. She holds bachelor's degree in journalism and a master's degree in criminal justice, specializing in information security.
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