Opening a small business can create financial freedom and extra time to spend with your family friends and loved ones. Unfortunately many fail to do so properly in my experience over the last 11 years I’ve found that well held small business board meetings are one of the constants in successful businesses.

There is mountains of work about what you should do before opening a small business, today I’m going to focus on the business entity management.

It doesn’t matter if you setup an LLC or a corporation. You will need to have a corporate formalities system in place for the entity.

This is your Directors (if a corporation) Managers (if an LLC) Officers. Almost all small businesses don’t pay much attention to these roles or the corporate formalities that go along with them. All of these small businesses generally stay small and don’t end up giving their owners the financial rewards they are looking for.

Not only is it a requirement to hold business meetings you need to accurately document them. Most view corporate formalities as trivial. This is a grave mistake! Not only will documented corporate formalities keep your assets safe they also give you as the owner to develop a strategic plan that will end up paying huge dividends for the owners.

There is something to be said about opening a small business and figuring things out as you go. You don’t want to spend all your time sitting around writing business plans and making fancy flyers.

I suggest a sort of hybrid to opening a small business . Once you have chosen your business entity you are going to use do what you need to do for your business to thrive. At the same time plan on holding monthly or quarterly board meetings. This keeps your business on track and you personally protected if a lawsuit ever happens against you and your business.

If you start to get into the mindset that board meetings are going to be fun and productive you will start to see drastic changes in your business faster than you can imagine.

Entrepreneurs love to strategize over time the day to day grind can wear down the entrepreneur and just leave him in a tactical rut. By holding regular board meetings and practicing corporate governance you will spend more time implementing new strategies and getting results than spinning your wheels and getting burned out.

To recap. Start taking massive action. Do what needs to be done to get your business up and running. Hold board meetings to strategize. Implement what was voted on at the board meetings. Before you know it the best financial idea you ever had was opening a small business.

The results that surface when used with other data can enable you to make an informed forecast about future profitability.

The profit potential is crucial in a business because to attract shareholders and long-term stakeholders like banks and investors the business models must be profitable.

Whether you are buying a small business or a franchise doing a full profitability analysis is a wise move.

The results if combined with other data that I will detail below, can forecast the company’s potential profitability. Profit potential is important to long-term creditors and shareholders because, in the end, the company must operate at a satisfactory profit to survive.

Showing profits on the books is very important to everyone that will have access to the companies reporting statements, people that will include lenders and trade creditors. They all have a stake in knowing that the business is profitable.

The best way to do a profit analysis is to look at the total assets that a business has then study the relationship between profit and sales.

Do shareholders currently take profits from the business each year?

If the profits showing do not look to be a large amount there could be many reasons why. Asking the following questions might help to provide an answer.

1. What are the current sales volumes like?

2. Are the costs associated with each sale too high?

3. Does the business have too much money invested in assets that do not relate directly to sales?

4. Do the assets that the business has return a profit to the business?

A calculation that you can use to measure asset return is to divide the total net profit
Amount the business is showing (before tax) by the value of the assets the company holds.

If the figure is one that is becoming smaller each year it will show that expenses are rising faster than sales income is growing.

How Can I work out what the real Net Profit Margin is?

Financial analysts and accountants call this figure the net profit ratio.

We arrive at the net profit ratio by taking a vertical analysis of the statement called the profit and loss statement. This figure will reveal the amount in each dollar of every sale made that represents profit. To get this crucial and often revealing figure we simply divide the business operating profits before tax by the net sales figure.

Margin of Gross Profit

To measure what the margin of gross profit in a business is we simply need to work out what each dollar of sales returns before attaching expenses. If we make a sale for one dollar and the business margin is forty-five cents, we have a 45% gross margin.