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What’s your money motivation?

What drives you to make money? Being clear about why you want to make money will help you put the right plans and processes in place to hit your goals.

Remember your purpose

When it comes to making money, focus on why you started your business in the first place, says chartered accountant Peter Prema. As a part-owner of accounting firm BetterCo, his business goals are tied into making money to fund his personal and lifestyle goals.

“Your business is a vehicle that will help you achieve whatever else you want to achieve in life, whether that’s travel, starting a family, or having the flexibility to go to your kid’s school assembly on a Friday afternoon.”

Once you’re clear on why you want to make money, work on a plan to make it happen.

“Hope is not a strategy,” says Prema. “A business plan gives you the purpose and the clarity to understand where you’re going, and enables you to set goals and actions that you want to achieve.”

A plan might also help you identify opportunities you haven’t realised before. Eg, if your goal is to spend less time working, some time spent planning might identify how growing your business might enable you to hire more staff and allow you to step back.

Once you have set out your goals, you’ll have a better idea of the sales, revenue or cash flow numbers you need to reach.

How to write a business plan

Run your numbers past a trusted team

“Get a good team around you,” says Prema.”Whether that’s a mentor, a coach or an accountant, so you’re getting good advice from experienced people. That way you could learn in a year what they’ve learnt over a decade.”

Meet with them frequently to check your progress against your business plan and financial targets. “That way you’ve got someone checking in and seeing if you’re hitting your 90-day action plan, rather than waiting for your annual financial statements and finding out you made a mistake a year ago. It’s about being proactive and knowing what’s working or what needs to be done differently.”

Getting financial advice

Learn finance basics

Even if you’re going to hire an accountant or a bookkeeper, Prema suggests learning the basics of business finance. “You don’t need to know everything, but it’s helpful if you can look at a balance sheet and say ‘oh, compared to last month my equity has gone up or down $30,000, what’s going on, what decisions do I need to make?’”

Introduction to business finance

How to read financial statements

Cash flow, sales and growth

Part of your financial education will be getting familiar with the ebb and flow of cash into and out of your business.

“We get a tonne of small businesses that come in asking us to find them ways to save cash. Yes, that’s important, but for us it’s sales first.”

By focusing on sales, you’ll be getting money through the door, says Prema. “This is going to help your cash flow, so you can grow your company.”

It’s also important to recognise that when your business is in growth mode you could have more money going out than coming in. “Growth can be when you spend money, and that can be hard to get your head around,” says Prema. “You might be hiring new staff or buying new assets.”

Growth might also mean taking on debt to fund your expansion plans. Before you do that, make sure you understand the difference between good debt and bad debt. Eg, a high-interest credit card that you can’t pay off each month might not be as appropriate as an overdraft or bank loan.

If you need help understanding the different types of funding options that are available, and what might be appropriate for your business, try business.govt.nz’s Funding Explorer tool.

Funding Explorer: Find the right type of finance for your business

Before you hire a new employee, work out how much it could cost you, with business.govt.nz’s Employee Cost Calculator.

Employee Cost Calculator

For help forecasting your cash flow, try the Cash Flow Forecaster tool.

Tool: Cash Flow Forecaster(external link)

Be prepared for tax

Tax bills also catch out a lot of small businesses. “For some businesses, tax can be a pretty big cash flow hit. If you haven’t planned for that, or if you haven’t been proactive about it, that’s when the struggle really happens.”

Prema suggests having an everyday account, a tax account and a savings account. “Generally put a third, a third, a third of your business income into each account, or at least 25% to 30% in your tax account, just so you’re covered for GST and end of year tax.”

Income tax and provisional tax

Claiming expenses

Tips to ease your tax payment pain

Create value through systems and processes

“With any small business, if you create a system, people run the system and the system runs your business. Understanding that is what creates value in a business, no matter how new or old the business is."

You can build systems and processes by sharing your knowledge. “Get your IP (intellectual property) onto a piece of paper, so other people know how you do things and why,” says Prema. “The more you keep in your head, the more you’re going to have to be involved in the day-to-day running of the business, spending time on things that might not be earning you money. If you’ve got systems and processes in place for other people to do those daily tasks, you can work on the business and that’s how you can really get ahead.”

It will also make your business more valuable. “If your game plan is to grow the business, then franchise it or sell it one day, its systems and processes that really drive the value up.”

Get your business running more efficiently

Pay yourself first

It might be tempting to plough all of your money back into your business, but Prema says it’s important to draw a salary. “If you don’t pay yourself, you’re going to grow your business and pay everyone else, but you’re going to be the one to suffer. Remember, you run the business, the business doesn’t run you.”

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