Setting up and running your own business is a hugely exciting time. There can be so much to think about and to do, it can be somewhat overwhelming. And the one area often missed or ignored, which can mean the difference between business success or business failure is….FINANCE!
Many people set up in business doing what they love. And they have probably had little if any training in finance. Finance does have a reputation (unjustified in my view) for being dull or boring and there are far more exciting things to do in the business. But if you don’t have a grasp of the basics of finance, you won’t have any business left to do exciting things in!
So here are a few easy steps to help you become FABULOUS at finance in your business on Small Business Saturday:
Keep a hawk-like eye on your cash
“Money isn’t everything…but it ranks right up there with oxygen.” – Zig Ziglar
Cash is King and no cash means no business. As a financially savvy business owner, always know:
- How much cash you have in the bank
- How much cash you are expecting to come in from sales/customers
- How much cash will be going out of your business, e.g. suppliers, tax, VAT, salaries, stock, computer equipment, etc.
If you don’t already, produce a simple cash forecast for a timeframe appropriate to your business, usually 3 months. Your forecast needs to show the above: what cash you currently have in the bank, what you are expecting to come in, what you are expecting to pay out and how much you therefore have left. A template is available in the Free Resources section of my website to help you: http://financetrainingacademy.com/free-resources/
Remember, this is a forecast and one potential future. If you don’t like what you see and there are some cash gaps, ask yourself what you can do to improve the situation before it happens? For example, you may decide you need to offer early payment discounts to get money in from customers more quickly in order to cover a large amount of costs due out of the business.
A cash forecast gives you the ability to see into your future and make decisions to change your future for the better. It is therefore a very powerful tool.
Keep your costs under control
“Beware of little expenses; a small leak will sink a great ship.” – Benjamin Franklin
If you like to spend, here are some tips that may help you:
It is very easy to keep an eye on the larger expenses but very often its lots of little expenses that can creep in and start eating away at your profits and cash. The cash forecast again will help you. Seeing all your costs written down in black and white can be disturbing enough to help improve your decision making and grow your business more successfully and more quickly.
By controlling your expenditure, you are improving your profits and your cash-flow – that’s pretty exciting! This generates more for you to spend further down the line.
Before you buy something, ask yourself “how will this purchase add value to my business?” It’s an easy habit to get into to. This question may help you realise you don’t need that item right now or another item may help you achieve more in your business.There is a difference between investing in the future of your business with the right expenditure and frivolous expenditure that is nice-to-have but won’t really add value and help you grow your business.
“Turnover is vanity, profit is sanity, cash is reality”
You’ve won a fantastic new contract – what an incredible feeling! And congratulations!
“Turnover is vanity”. Increasing turnover (also known as sales, revenue or income) is important in a business. However, as a financially savvy business owner, you need to know if this new piece of work is profitable. What if this new contract is worth £10,000 but it costs you £20,000 to service it? You might need new staff, additional software licences and maybe even larger premises. “Profit is sanity” so ensure your sales are profitable.
“Cash is reality”. Unless that new customer pays you in full and on time, your business may start to struggle. How much time and money will it cost you to chase overdue debts from this customer? Know that they are credit-worthy or request payment up-front. As Lord Sugar himself says “getting paid is THE MOST IMPORTANT PART of your business.” Cash is King!
If you take on board these simple and easy-to-implement steps, you will be more fabulous at finance and your business is more likely to grow safely and successfully. Enjoy the journey!