As business owners, money is often at the top of our minds. We want more of it, we need it to run the business, we need it to grow the business, we need money but at times it can be hard to get our hands on enough to meet our needs when we need it!
Money can keep us awake at night and it can also fill us with delight.
Money is critical in business and effective money management is the panacea for business success (and less stress!).
You hear the saying ‘cash is king’ and in business, this is the truth. Poor money management is one of the top reasons why businesses fail. If you have control over your finances and have a good handle on the money flowing in and out your business, you are much more likely to succeed in the long term. If you don’t and you have a more relaxed approach to money, you may find that quite quickly, you find yourself in trouble.
A point to note is that more businesses fail for lack of money, rather than due to a lack of sales. Having sufficient money is essential so that your business can weather the storms and stay steady during the realistic ups and downs that most businesses experience.
Every business owner, no matter how large or small their business is, needs to master their money management skills.
Here are a few strategies to help increase the amount of money that comes into your business and reduce the pressure of not having sufficient money.
- Keep your accounts up to date. If numbers aren’t your strong point – outsource this and seek advice from a professional. There are also lots of accounting software you can use to help you. By keeping your accounts up to date you can better understand and monitor how money flows in your business (cash flow management)
- Keep your business and personal expenses separate. Take a fixed amount from your business account monthly as salary or remuneration and resist the urge to keep dipping in. What’s left over is still yours but you are likely to think more strategically about how this is spent.
- Have a simple but strong invoicing policy. Once services are complete invoice immediately and chase overdue payments. Ensure you have an effective credit control process in place before offering credit to your customers. Consider sending statements, reminders and following up with a phone call at predetermined intervals. Make sure your credit terms are clearly stated and you adhere to them.
- Have a money reserve. This allows you to take advantage of opportunities as they present themselves and know that you have a cushion if there are any unexpected events. Aim to have 3-6 months operating costs in reserve (save up monthly until you achieve this).
- Ensure your prices includes all costs plus a margin (this is your profit) so you don’t run into the danger of selling but having no money in the business.
- Avoid credit terms that are more generous than you receive from your suppliers. You run the risk of being cash strapped when you have to make payments. You can’t spend money that is not in your bank.
- Don’t bury your head in the sand! Try and forecast and have a good handle on your next quarter. If you think you are going to come into problems, this gives you time to address them and come up with a suitable plan. If you run into money problems, the most important thing is not to pretend that it is not happening and hope it goes away…it won’t. Talk to your suppliers and your bank about it as soon as possible. If you are proactive you are likely to get more support to get you through the rough times.
The best way to avoid any financial surprises in your business is to maintain a disciplined routine. Develop your own routine and policies and ensure you stick to them, this will help ensure you are in control of your money, rather than letting your finances rule you.
Being proactive with your finances means that you are taking action and planning ahead (forecasting) rather than reacting to events and waiting for circumstances to force you into making decisions. Use our tips above to help you manage your money flow and you will soon see the benefits it will bring to your business.
So ask yourself: Are you in control of your finances, or do your finances control your actions?
Need some help with this or any aspect of money management in your business? Get in touch with Tayo on firstname.lastname@example.org.