Most businesses don’t have all their money coming in from one single source and that’s a good thing. Having diversified interests and several income generating projects at any given time makes sure things keep rolling and cash keeps coming in even when one particular project or one aspect of your business comes to a grinding halt.
As you work on multiple projects, you’ll notice that they are not equally profitable. If you’re only looking at one general cash flow statement, you may be missing some important information. Instead consider tracking the cash flow for individual projects, clients or divisions of your company.
You may have an idea of how individual projects are doing, but it’s hard to see the full picture of income, expenses and time spent when you’re right in the middle of doing the work. Instead, set up a spreadsheet and track the cash flow data for a few weeks.
Chances are you’ll see some interesting trends emerge. Certain types of projects, a group of clients or a particular portion of your business may be much more profitable than the rest. On the flip side, there may be things you’re doing right now that eat up a lot of time and resources, but don’t end up making you any money.
Tracking project by project allows you to pinpoint exactly what’s making the money and what isn’t. You can use this information to start culling some of the things that aren’t profitable and do more of what is.
Of course you don’t want to put all your eggs in one basket, but focusing on what is working and generating income for your business (as opposed to working on things that don’t) is always a good idea.
Periodically go back and review your current cash flow data broken down by project to make sure you’re staying profitable in all aspects of your business. While you’re at it, track any new ventures you’re starting out in as well. These statements will help you make smart business decisions and decide what’s worth spending your time and resource on.
The same holds true for clients. Tracking cash flow and profitability of individual clients can be valuable as well. Track your top customers and focus on soliciting (a) more work from your most profitable clients and (b) more clients that are similar.
By focusing on what’s working and giving you the biggest bang for your buck (or time) you will increase the overall profitability and quality of your business.
Randy Bett is the author of three books – 7 Secrets of Real Estate Investing, Investing in Real Estate Sucks Unless… and The Value Driven Approach To Sell Real Estate.
He is also a retired high school teacher and former Saskatchewan farm kid. He now writes, speaks and coaches full time. He is happily married and has 2 children and 2 grandaughters. He lives in Red Deer, Alberta.