Your small business needs its own financial plan
All successful small business owners know that cash is king. Without proper cash flow management, your newly launched small business could find itself being unable to pay its own creditors or staff, resulting in premature closure.
“Ensuring that you have a proper cash flow management system in place is absolutely key to success for any small business owner,” says Errol Meyer, Legal Specialist, Advisory Services at Standard Bank Financial Consultancy. “One of the biggest reasons that so many small businesses go under in the first year is because they haven’t managed their cash flow properly.”
Mr Meyer says that proper cash flow management starts with having a formal financial plan in place for the business. To this end, he offers the following advice:
Create a Dedicated Financial Plan for Your Business:
Meyer says it is essential that you differentiate between your personal financial plan and that of your business. Too many owners dip into their business account to purchase personal items, leaving the business in a precarious financial position. How do you explain to staff that you can’t make salary payments because you purchased a brand new car for yourself in the name of the business?
Have a Proper Invoicing System in Place:
Make sure you invoice your clients as soon as you’ve provided goods or services and ensure that they are aware of your credit payment terms. Far too many businesses record excellent sales but end up failing because customers or clients either pay them too late or don’t pay at all. Make it easy for customers to pay you and consider giving them discounts for early payment.
Often when people embark on the goal of owning their own business they want to start off with the latest equipment. The result is that they end up spending too much too soon, leaving themselves with little to no cash flow. If you’re running a delivery or courier business you don’t have to buy a brand new vehicle, when a quality second-hand vehicle will do the job just fine. By the same token, if you’re starting a restaurant you don’t have to equip your kitchen with the latest cooking and culinary equipment. Try to source decent second-hand equipment and purchase the new stuff once you’re on your feet. You also don’t need to start out in a brand new office. Even Mark Shuttleworth started off in his parents’ garage!
Stay on Top of Your Admin:
Running your own business can consume all of your time with the result being that basic administration tasks such as tracking payments and expenses can fall by the wayside. Once you are up and running, consider hiring a full time bookkeeper or admin clerk to assist with this vital process.
Beware the Taxman:
The taxman can end up becoming your biggest enemy if you don’t stay on top of your tax responsibilities. Find out whether the business is required to register as a provisional tax payer and ensure you comply to avoid penalties. If your business either makes, or is likely to make, more than R1m in turnover in any consecutive 12 month period then it is mandatory that you register for VAT. Accurate bookkeeping is also an essential component of remaining tax compliant as you will need to accurately account for profits and expenses.
Have a Backup Plan:
“Hope for the best but plan for the worst,” says Meyer. If you’re running a restaurant and the city you’re in has a power failure over a weekend, a key trading time for most people in the restaurant trade, it could severely hurt your earnings. Having a generator on hand could be the difference between going under and staying afloat. Similarly, if you’re running a coffee shop and there’s a problem with the water supply in your town and city, you’re going to have a hard time serving customers.
Invest in the Right People:
Good leaders know how to surround themselves with the right people. If you don’t have a skill in a particular area consider hiring someone to take care of that task for you. Once you have found the right person, make sure you look after them!
“Every small business starts with a dream, but to achieve this takes work,” says Mr Meyer. “You’re not in it alone though. Financial consultants can guide you on where to start, and in most cases their advice comes with no initial cost to you. Speak to your bank.”