Mismanaging money is one of the most common reasons small businesses, sole traders and contractors fail. Our step-by-step guide will help you stay on top of your finances.
Your business model is the way you or your business is going to operate and make money — however much you want to make. It helps you identify how much money you’ll need to get started and what your income needs to be to cover costs and make a profit.
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.
To understand your numbers you need to know what’s happening. Accurate records help you see what’s going on in your business.
For Vicky Ha of House of Dumplings, managing her finances is about having money in the bank before buying things. “I started with two pasta machines. I mixed the dough by hand. That is just stupid, but I didn’t want to spend $1,000 on a mixer. I did it the hard way and until I had the money in the bank I wouldn’t buy it,” she says.
“What you want and what you need is completely different. That’s business 101. Never get what you can’t afford — that’s the bottom line for me.”
She also understands that part of running a successful business is knowing what you’re good at and where you need help.
“I worked on what I wasn’t good at. I hate numbers and details. I had to find the right people to do that stuff for me. If that means paying people, that’s necessary because you need to concentrate on what you’re good at.”
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.
Finances are an important part of running a business, and sometimes this means you’ll need help from an accountant or bookkeeper.
You may prefer to get help with your accounts so you can work on other areas of your business.
If someone who owes you money is in financial stress, you’ll probably notice changes to their payment patterns, says Anna Chartres of Christchurch law firm Lane Neave.
“They’ll be deviating from your standard credit terms and conditions which they may have previously complied with. You might see that they are slow on payments, you have cheques which are being dishonoured, and that’s an early indication that something might be awry,” she says.
“Make sure you have terms and conditions of trade in place. If you’re supplying goods, it’s a good idea to grant a security over those goods and say that title in the goods — the actual ownership of the goods — doesn’t pass until you have been paid.”
We want to understand the major challenges small businesses are facing, so that we can work with government and the private sector to help Kiwi businesses succeed.