Estimated reading time: 4 mins
When you start a business, you are starting a new financial journey. Depending on how you set up your business will depend on what will make an impact for you. The choices you make will make or break your bottom line. The quickest way for a company to go bust is misjudging how your cash flow is going and running out of money.
So making smart financial decisions, and having things in place for those low cash weeks or months is a must.
The money that you make in the early days would be better to split some between going back into the business and saving some. You might not feel the need, or want to take a salary in the first few weeks or months. You will have to eventually because if you don’t, then the day you do your cash flow will change a lot.
When you work out what your must-pay bills are, you will be able to get a great view of what you can save. You’ll ideally be aiming to save enough to keep your business up and running for a few months, while you hit any dry spells. 3 months is usually enough for you to be able to tell in which direction your business is going.
Don’t be tempted to put the money in a safe. But, do put it into an account so all of the time that it isn’t being used as an emergency fund, look for high interest. So it will generate cash while sitting there.
When you first put your business plan together, you will have written up a cash flow. The idea of a cash flow is that you have something to compare reality too. And, like all businesses, adjustments need to be made. There will be a discrepancy between your projected and real numbers – so don’t worry when that happens. Adjust your cash flow projections for the next 6 months at least. One of the most important investments you can make is going to a good accountants. They will be able to advise you on where you deductibles lay as well as talk to you about other financial decisions that will benefit your business.
Before you started up, you may potentially have ad access to grants and loans. Or, maybe you went down the route of a friends and family loan. Perhaps even an Angel Investor. But once you have picked up all of the items to run your business – what you have left needs to last. And you will have to stick to any terms that you agreed to, about how to use the money. While it might be tempting, after a year or so to take another business loan, try to resist the temptation. Many businesses take a loan when they see that things aren’t going well, and how to use it to save the business. The problem with this line of thinking is that the money will be sucked into the company debts, clearing some but invoices will still be stacking up, and you’ll always have the outstanding loan to pay.
Take a look at how you are charging people. Many start-ups don’t charge as much as they should, or the way they take payments isn’t always in their best interest. Sometimes a one-time charge looks good on paper, but for a short while. Changing to ongoing payments can make a more positive impact. Or, you can have a larger first payment and then regular payments for the duration of the contracts. The business model with the most life is going to be the ones that keep payments coming in monthly, and value being delivered to your clients.
As mentioned above, many start-ups don’t charge what they should for their services. Regardless of the groundwork that was put into the market research and competitor analysis. Many start-ups will price themselves too low, simply to get business in. And while that works for the first few clients, you might just find that it’s too low to continue doing business well. So even if you think your pricing is fine, book in time to sit down and see if it is actually as beneficial as you think.
- Think about the real value of your product
- How much cheaper than your competitors, are you?
- How are you priced in comparison to your costs?
You should keep an eye on money at all times. The small spends, creditors and debtors, running expenses will all stack up. Be aware of where you can be doing better, where you can trim the fat – and where the best investments are.