6 Ways to better control your business finances
In the current economic world, running a small business has a whole host of potential barriers, none more so than money. Money makes the world go round we are told, and with increasingly limited lending sources, tighter borrowing criteria and a general waryness about taking on credit, how businesses approach finance and cashflow is often a make or break for their success. It’s not all doom and gloom however. You can make it, and many do, you just need some thought, some preparation and some knowledge. So here’s our six top tips on making your business funds go further and how not to overspend your budgets.
1. Set a budget
It may sound ridiculous but the majority of businesses fail because they have no idea about how much money they spend or perhaps need to spend. In business every thing you do, from boiling the kettle (increased electricity) to making that phone call (do you choose mobile or landline?) has a cost. Even planning, sitting down working out what you do tomorrow, has a cost. You should value your time in every sense. You should also value everything you spend. So know what your limits are and you won’t find a few weeks down the line that you just did that last job for nothing.
2. Calculate your costs and add a little more, then some more.
When a ‘job’ comes in make sure you fully cost it. Include a bit more for a contingency too. Even the best of us will forget to include something in an initial estimate and inevitably there will be hidden costs, such as emergency delivery for essential items or the need to draw in extra help due to delays, sickness or just sheer weight of work. Yet, that only covers your costs, unless you are some super-rich philanthropist you will probably be expecting to make some money too, so make sure you then also add on a profit margin. Remember, this needs to cover all your overheads too such as rent, tax, etc so it will soon get eaten up, so be realistic to yourself about how much this needs to be.
3. Keep your books up to date
Hopefully, you understand we are not referring here to avoiding overdue library books, this is your accounting books which are the dashboard of your business. From day one of your business make sure that you note down everything you spend and everything you earn. Legally you need to do this anyway, but it pays to get into a good habit to do this regularly and not just when tax deadlines loom. A glance at your books will help you analyse the state of your business in a matter of minutes. Only with these being accurate can you begin to look at unnecessary expenditure that may be cut. Staying organised with your books goes beyond just cashflow, it shows an organised mind and a commitment to the nastier side of business. Very few people like doing their books, but business is not all about meeting clients and creating products.
4. Use technology to break the leg work
It is clearly proven that the use of technology within your business practices will help improve productivity. Check out the online tools we have suggested here. Many ‘super-tools’ do come with ‘super’ price tags too and remember the aim is to help your cashflow not hinder it, so check out free-trials of any products you are interested in. If they don’t clearly offer a free trial, call them up and ask. If you don’t ask you won’t get and in the modern world, many businesses will see this as an opportunity to recruit you in the future as a customer.
5. Spread the costs
If you do purchase new equipment, new tools, new software, then try to spread the cost. Many companies will offer monthly payment plans. Some will charge a credit premium but even these may be worth looking at. Having the knowledge that every month, this, this and this will come out of your bank account is far easier to manage and plan than big lump sums here and there. This is particularly true where there is an annual renewal fee. While this year you may be well placed to pay a lump-sum up front, next year you may not be as flush that month. If you pay monthly you should already have that covered.
6. Review any contracts annually
Inflation, interest rates, economic dips. Even the experts can’t seem to predict how these will change over the next few years, so what makes you think you can? Multi-year deals sound great initially for a small business but too often they are the undoing of them. Your agreements with clients should always be representative of your current costs and the current state of the market, so make sure your contract with them does too. All your contracts with vendors and suppliers should at best be limited to a year, or at least allow review after a year. Annual negotiation will not only ensure both parties are getting a fairer deal but also ensure you are more focused on costs, making the contract work etc. While it will mean more admin, in the long run it will save you money and cut your costs much more than a multi-year deal.
That’s just 6 tips, but there are countless more – many of which we will refer to in future blogs. The key to staying on budget and in business is taking a step back every now and then and reviewing what your strategy is and how it is going. Controlling your business is about more than doing everything right, it is also about not doing too many things wrong and being too consumed in the day to day grind of your business can mean you miss very simple costs that are spiralling out of control.