Have you been treating your business account as your personal ATM? Drawing money whenever you feel you deserve a little bit extra? It is time to become a bit more disciplined. Your business finances are the litmus test for how prosperous your business will be, so you need to be disciplined in the management of it. So, how do you up your business’ financial discipline game?
1. Understand your spending
Look at your bank statement over the last three months and look at where you are spending money. This will give you some idea of what your financial situation is. From this viewpoint, we can look at what is doing well and what needs to be adjusted.
2. Create a budget
A basic budget, which you can aim for, is one which is 50/30/20. 50% of the money coming into your business pays for the needs of the business (mortgage, phones, salaries etc) 30% is profit which you can either give away in bonuses or treats for you and your staff or reinvest into your business and the last 20% is to pay off debt and create an emergency fund. You should discuss with your accountant the best budget for your business.
3. Discovering an emergency fund
You never know when something will happen and you will need some money quickly. By developing a three-month emergency fund, you will be better positioned to survive an unforeseen circumstance should it hit.
4. Avoid incurring debt
Having debt may be necessary from time to time, but it mustn’t be your go-to. When you want to do something, and it will cause debt, you need to carefully assess the return on investment. Sleep on the idea and see if you still feel as passionate about it in the morning. Good ideas will always be good ideas in the morning.
5. Review your cash flow
Where are you spending your money? Where is your money coming from? If you use an app and it does not have the return on investment that the salesperson promised, then it is time to axe it. Cut out all unnecessary expenditures, especially in the first year of business. You want to put as much money as possible back into your business when you start. It is also important to review your market and see if it is still as profitable as you first thought or if you need to consider targeting another market.
6. Leverage forecasting
Unfortunately, we can’t know for definite what will happen in the future but we can make an educated forecast of what we believe will happen. By forecasting, we can see the money goals we need to have in place for the future of our business and ensure we continue to build our cash flow to compensate for what we believe might happen in the future.
By following these six steps, you will have upped your business’ finance discipline game.
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