September 15, 2012

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I started my coaching practice in 2006. I worked part-time, so everything was very casual, and I didn’t measure anything.

Twitter had just officially launched that March, Google Analytics had just been released in November of the prior year and I didn’t have a user account on Facebook. Clients mailed in checks, I didn’t accept online payments, so income wasn’t tracked via PayPal, and I didn’t keep the best financial records — I balanced my checkbook and completed my business taxes.

Looking back, my lack of measurement in business was a huge mistake.

Had I established any metrics at all, I would now have six years’ worth of information to analyze–information on how much growth I’ve experienced, what people responded to and trends. In short, I would know how I was really doing in business.

Small Business Finance Measurement Tips

Based upon my prior experience, I now realize how important it is to measure business activities.

First, I’ll start with things that are related to cash — because every small business owner has to pay for a roof over their head.

The most obvious metric to track is income. Has it changed from year to year — or on a quarterly basis? If you accept online payments and manage your finances with online accounting tools, the web presents a ton of benefits to help you with your financial analysis.

If you accept payments via a merchant account, like Paypal, you can automatically download a year-end summary report. Everything is added up for you, including merchant fees — which are a tax-deductible business expense. There are also great cloud-based accounting tools such as Outright.com.

As you look at your income, it can also benefit you to review income by categories. For example, I have several revenue streams to look at each year: coaching, workshops and e-book sales.

Then ask yourself:

How much perceived effort did I put towards a particular category and how much did I earn? I believe that perceived effort is more important than actual effort because if you perceive that a task is arduous, it doesn’t matter if it only takes one step.

For example, if I perceived that it was really hard to create and market a particular e-program, then I needed to think long and hard about whether or not that’s something I would continue. Start by identifying the factors that were most challenging and weigh it against benefits (i.e. financial, marketing, social, etc.)

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