Even the most exciting of businesses with the best products and most innovative service will come unstuck if its finances are not well taken care of. Putting some good financial practices in place right from the start, and following those practices as closely as Barr Rosenberg would, is a great way to become an expert like he is, and to keep your business running smoothly. When your finances are working as they should, everything else will fall into place, and that means your business becomes more enjoyable to run as well as more profitable. Read on to find out what kinds of financial practices we mean, and how to stay on top of them.
Know Your Day To Day Running Costs
If there isn’t enough capital to cover your essential (and perhaps non-essential) costs within your business, it’s going to fail, or at least not grow very quickly, if at all. Salaries, rent, being able to buy more stock, taxes… These are all important considerations when it comes to cost, and once these start being missed, the business is in trouble.
To ensure that they are never missed, you need to know what they are. Add up all your day to day running costs and work out how much your business needs to make every day to keep it running. This becomes your target – anything on top of a profit. If you’re consistently missing this target, you’ll need to consider making some changes.
Get Paid On Time
If you do the work, invoice the work, and then have to wait for many weeks or even months before you get paid, that’s going to have a major impact on your business finances. No matter how much work you’re doing and how healthy your order book is, or what your invoices add up to, if you’re not getting paid, none of that matters. You may as well not be doing any work at all. In fact, not doing any work is more cost-effective than doing work and not getting paid as there is no outlay!
Although there will always be some customers who do wait until the last moment to pay their bills, some just need a gentle reminder. This could be starting your terms clearly on an invoice and any additional correspondence, for example. Alternatively, you can use a factoring company so that you are paid immediately, although your profits will be reduced if you choose this option.
Once you have been paid, it can be tempting to start spending that money on ‘important’ items for your business. Sometimes, of course, those items really will be important, and they are exactly what you need to take your business to the next level. Sometimes, however, they won’t be important, and would actually be a big waste of money.
Rather than run the risk of losing all the money you’ve just made and then having financial problems later down the line, make sure you spend carefully when you do spend. Only buy exactly what is required, research every purchase, and try to find – or negotiate – a lower price if you can.