Whatever your business does, the purpose of it is simple: to do it at a profit.
That’s the whole point of business. Even if you run a not-for-profit organisation, you still need to make a profit to reinvest (or at the very least break even).
So how do you make a profit from your business?
There are hundreds of articles here on ByteStart to help you do that. But the first thing to get right is to maintain a positive cash flow by developing good business money habits.
While the point of business may be to make a profit, staying in business is all about cash flow. Run out of money and there is no business, simple as that. Most businesses that go under do so not because they aren’t profitable, but because they run out of cash.
Here are some good money habits to help ensure the financial success of your small business:
Take the minimum amount of money out of the business
While many people start their own business to earn more money than they did working for someone else, it actually makes more sense to take as little out of it as possible, especially in the early days.
It means you will have more cash in the bank, and having a nice cash buffer will give you freedom to do things like take on an extra employee, even if they can’t earn the business any money for a few months.
Spend money only as an investment
Running a successful business isn’t about being tight; it’s about being smart with your money. Here’s a simple way to do that – before you spend a single pound on anything, look at it as an investment and ask what the return is.
If you spend £100 a month on a cleaner, what’s the return? It’s your time! And if you can use that to get the accounts up-to-date rather than run around with a mop, that’s the return.
A data purchase can be used to generate sales. New accounts software can give you better information leading to smarter business decisions. What return do you really get from fresh flowers in reception or staying in a luxury hotel compared to a budget one?
Make every day a cash flow day
Maintaining a good cash flow is all about knowing exactly what’s coming in and going out. And that means a 10 minute investment of time every day. No matter how busy you are it will be worth it. The awareness you will develop of the impact of bills and slow payers on your bank balance will give you a new understanding of what’s really happening in your business.
Have a debts day
On the same day each week check who owes you what and chase the late payers. It’s your money not theirs, so don’t be scared to politely ask for it. The older a debt gets, the less chance you have of collecting it. Regular customers will soon learn that your business is the one that contacts them every single time their payment is late.
Offer a discount for fast payment
Why not help your customers develop a good habit of fast payment by offering a small discount if they pay within 7 business days of your invoice being issued?
Check your cash position once a week
This could be seen as the amount owed to you plus money in the bank. Some businesses measure what percentage of their cash position is in their customers’ bank accounts and not their own! An increasing percentage can be an early warning sign that the speed of payments is slowing down.
Put aside VAT and tax amounts every month
All businesses should have two bank accounts: a business current account and a reserve or a business deposit account. And moving money regularly into the deposit account is a good habit to get into.
You or your book-keeper should be able to predict the amount of VAT or tax that is due on a regular basis. So move that money into your reserve account in advance. There’s no better feeling than getting a tax bill or VAT return and realising you have more than enough to pay it already stashed away.
Final piece of advice – think big, act small
If you want to build a £1 million business, then focus on that goal and don’t let go of it. But just because you are thinking big doesn’t mean you should act that way. Act small in the way you spend and concentrate on building your business.
A big flashy car and chunky watch might be signs to other people that you have “made it”, but you will get a lot more satisfaction from hitting your business goals.