Tips to help your business
Mismanaging money is one of the most common reasons small businesses fail. Follow these steps to stay on top of your finances.
Your business model is the way your business is going to operate and make money — however much you want it to make. It helps you identify how much money you’ll need to start up and what your income needs to be to cover costs and make a profit.
- Identify your operating costs, eg staff, electricity, lease.
- Estimate your likely customers, eg foot traffic and how competitors in your area perform.
- Know your limitations, eg if your cafe can seat 20 people at a time, it limits how many people you can serve in a day.
- Keep metrics specific to your industry, eg the cost of a cafe will be different to an IT contractor.
It’s easier to model operating costs first, then think about how much money you’ll need to cover your costs.
Now you know how much money you need to cover your costs and make a profit. The budget is where you set your goals and a plan for how you’re going to get there.
- Set your targets — what are your profit goals for the year?
- Plan for your costs — when do payments need to be made?
- Review your budget with how you’re actually tracking monthly.
You may need to make changes to your budget as you go. If you’ve planned to sell 10,000 cups of coffee each month, but only sold 8,000, you may need to reconsider how you’re going to hit your goal.
To understand your numbers you need to know what’s happening. Accurate records help you see what’s going on in your business.
- Keep accurate and up-to-date records.
- Stay on top of your cash flow — the money coming in and going out.
- Use a separate bank account for all your business income and expenses to track your spending.
- Understand the trends of your business — do you have enough to keep you going during the quiet periods?
- Set aside money for periodic payments, eg putting aside a portion of your income in a savings account to cover taxes and levies.
- Ask to pay bills in instalments, eg pay for your accountant throughout the year instead of in one big invoice.
Find the system that works well for you. Online systems can make it easy to keep records up to date.
You need to be paid for the work you do. Until payment is made, you’re financing the cost of the job out of your own pocket.
- Be clear about the estimated cost before starting the job.
- Invoice for the work you do — no one is going to pay until they have been invoiced.
- Invoice as soon as possible — your customer will consider it a lower priority the longer you leave it.
- Chase debtors regularly, eg at least every month.
Invoice when your customer still remembers the value of the work you’ve done — the longer you leave it, the more this will wear off.
Finances are an important part of running a business, and sometimes this means you’ll need help from an accountant or bookkeeper.
- Get advice before making a financial decision you’re unsure of, eg expanding into a new area or buying a high-value asset.
- Ask for help if you feel like you’re not on top of things or at key times, eg when doing your first tax return or when operating at a loss.
- Weigh up the cost — paying an expert may end up cheaper than trying to do it yourself.
Consider where you want to spend your time — you may prefer to get help with your accounts so you can work on other areas of your business.