The six financial foundations business owners need to have in place
Monday, September 2, 2019/
Running a business can be wonderfully rewarding. You get to be your own boss, choose your own hours, your own dress code and your colleagues. You get paid to do something you really believe in. What’s not to love?
But in reality, running a business is hard work. You’re responsible for everything, from marketing and invoicing to keeping both clients and employees happy. Only once your employees and expenses have been paid will you see a paycheque.
It’s a lot to deal with, and the last thing you want to be doing on top of all of that is worrying about money. So how can you achieve success without getting into financial trouble?
1. Remember your ‘why’
One thing is certain: the road won’t be smooth. There will be financial challenges. You might land a huge contract one week, only to be tearing your hair out the following week due to tardy clients who don’t pay on time. You might not see the growth you had expected in your first couple of years.
Remembering why you started the business in the first place will help you navigate tough times with a cool head. Write down your ‘why’ and stick it to your bathroom mirror or on a card in your wallet. Ride out the financial ups and downs knowing you’ve got a bigger goal in mind.
2. Don’t make it personal
Starting a business often requires the investment of your own money, but after the initial investment, you must draw a clear line between business and personal finances. If the business gets into financial trouble, don’t attempt to bail it out by sacrificing your personal assets. It’s a slippery slope and could land you in financial strife in no time.
Think carefully about whether you will run the business in your own name, a trust or a company. This decision could determine whether you are personally liable for any debts.
Accept that if things don’t go well, you may have to sell or close the business and get a regular job. This won’t be pleasant, but it’s better than losing your family home.
3. Have multiple safety nets
What’s your plan B if the business goes belly up? In order to ride the financial rollercoaster of owning a business, you need to put safety measures in place.
An emergency fund should contain enough money to cover your expenses for at least six months. This buffer will help you stay afloat if cashflow is unpredictable and will help pay your bills if you’re not earning a salary yet.
Income protection insurance is essential and will be your saving grace if the worst happens. You should also be making regular superannuation contributions for your future.
4. Get intimate with your finances
Financial literacy is a must for business owners. I know what you’re thinking: ‘Numbers aren’t really my thing.’ Make it your thing. You can’t afford not to. Understand what’s coming in, what’s going out, what you owe and what others owe you. Cashflow, balance sheets and income statements are your new language, and understanding them will help you avoid costly mistakes.
5. Play the long game
Is your business idea a long-term prospect or a passing fad? Technology-based businesses are particularly susceptible to rapid success followed by sudden failure when the market moves onto the newest tech. If your product uses technology that’s nearing the end of its lifespan, is it really a good idea?
Even if you’re not in the tech business, it costs money to keep a business open long enough to be profitable, so you need to be financially prepared for the long road ahead.
6. Get professional advice
While decent accounting software will get you some of the way, it pays to enlist the help of a professional accountant and financial adviser early on. These qualified financial professionals can help ensure your books are in order and your financial plan is solid from the get-go. Investing in professional advice will help you avoid expensive blunders, while freeing up your time to focus on the business itself.
Running a business isn’t easy. It takes patience, perseverance and a willingness to take risks. You will face many problems, but with strong financial foundations in place, money won’t be one.
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