People get into business for various reasons; some value flexibility, others don’t want to be capped by a structured salary. Either way, running a business shouldn’t mean living month to month and scraping by. Thriving and experiencing financial abundance requires planning ahead. writes Sonia Gibson.
With good strategies in place and consistent financial monitoring, you can put scrimping and scraping-by behind you.
Here are four important ways to plan ahead in business
Ascertain your business’s current financial wellness
Quarterly meetings with your accountant should give you insight into your business’s overall financial health. You must know where you stand in order to ascertain what budgeting decisions to make going forward, and how to allocate funding. Many business owners find the level of accountability it takes to honestly review their finances intimidating and almost confrontational, it’s not unusual to want to make assumptions and create actions that facilitate generalised growth without actually examining your financial specifics beforehand. The best advice from real finance gurus is to have the difficult conversation with your accountant, get honest, so that you can improve your current situation.
Ask your accountant to generate a financial forecast
Based on your business’s history, the current consumer market trends, and the way in which your general industry is headed, accountants can generate an accurate business forecast, factoring in any actions and strategies you have in place. If a forecast suggests a dip in revenue, you can find ways to increase your lead generation efforts. This might entail a small pivot in order to meet the demands of the consumer market. Where there is growth forecast, strategise ahead of time on how to divert additional funding into business growth by increasing lead generation efforts and marketing efforts.
Set aside taxes as money comes in
One of the biggest downfalls of small businesses lies in skipping the simplest habit; setting aside taxes as revenue enters the business account. This might seem counterintuitive when you’re trying to survive month-by-month, but borrowing against your taxes will only worsen the overall financial wellbeingof the company, placing further strain on your month-by-month survival. Consider that that money doesn’t belong to the business, it belongs to the government. By not setting it aside, you’re only borrowing it, it needs to be paid back. When tax season arrives, the exorbitant bill is enough to crush any business that doesn’t have robust finances. By setting aside your taxes, what you owe is already pooled together and ready for payment.
Create a cash flow system that works
Each business needs a tailored cash flow system, but there’s also a general approach that ensures your company is committed to generating a profit, making month to month survival far easier over time. Here are a few tips:
- Have a separate transactional account – never leave the funds in the account you’re paid into, ensure that the money is directed as needed on a regular basis (for example, every time you do a payrun).
- Have a tax-only account – this makes it easier to set aside your taxes and prevent yourself from accidentally spending it (it doesn’t belong to you).
- In the same way that you have calculated your taxes on each invoice, know what your profit is, and set that aside into its own bank account. Do it before you cover expenses.
- Next, set aside money for essential expenses that ensure you can continue to operate
- Finally, what is left can be used towards non-essential expenses. Nothing left? You will have to cut back on expenses (not profit).
By following a good cash flow system, your month-to-month survival becomes far simpler because you are committed to generating a profit while still operating within the means dictated by your current financial status.
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