By Mark Wright, BBC Apprentice Winner and Founder of leading digital marketing agency, Climb Online
In recent years, a number of large businesses have gone into administration and, with COVID-19 aside, this hasn’t resulted from lack of sales or custom, but rather a lack of control over finances, such as cashflow.
In fact, pre-pandemic, 1 in 7 UK small business owners have been left unable to pay their employees on time due to finance and cashflow problems. With 2020 likely to go down as one of the most economically challenging years in history, there are a number of key changes business owners can make to improve their business finances, and quickly, with the top 5 as follows:
Create Clear Processes
The majority of business owners review their accounts, P&L and expenditure on an annual basis; meaning they don’t have any insight into their revenue, costs or profit levels until informed by their Accountant. Every single business owner – regardless of the whether the company is big or small – should have monthly management accounts, which not only shows monthly profit and loss, but also documents exactly what has been spent across the whole business.
Reviewing this on a monthly basis will show you where you are spending the most money and whether there are any costs that should and can be curbed.
Know Your Costs
It is vital to know your costs and one of the best cost-saving exercises is to regularly review your suppliers. As the famous 1980s story goes, Robert Crandall, the then head of America Airlines, calculated that if he just removed one olive from every salad served to passengers, no-one would notice, and they would generate an annual cost saving of $100,000.
So, as a business owner, ask yourself this question: What is your one olive? We all have long-term suppliers or regular outgoings that we fail to review on a consistent basis. Run through your P&L and look at all costs to find the areas that can be squeezed to improve the bottom line.
That said, the one area I never consider cutting is marketing, as without it you have no lead generation activity and, therefore, no sales. If your marketing activity isn’t working for you, don’t cut the spend, move it – whether that’s to a different supplier or form of marketing activity. To thrive and even survive in business, particularly during the current COVID-19 pandemic, you need to maintain your marketing budget at all times.
Know Your Numbers
In business, it’s really important to know your numbers, both from a revenue and cost perspective and also from a cash perspective, as without cashflow, you have no business.
There are really simple but effective tools to aid you in keeping track of both. The first is a cloud-accountancy platform, like Xero, which your accounts team or a bookkeeper should keep up to date and the second is a daily review of your cash at the bank.
Where Xero provides a real-time picture of the current level of expenditure within any given day, week or month, knowing the daily cash at bank allows you to identify any potential problems with cashflow before it turns into a real issue.
Ultimately, knowing exactly what you have going out and coming into your business aids you in making important decisions to move the business forwards, such as investing in a new website or hiring new staff. It sounds simple, but so many business owners run into trouble by not keeping track of their costs or their cash.
Know Your Role
As a business owner, it is not your job to process financial paperwork, such as payroll, invoices or tax returns. That is the role of your accounts team or bookkeeper.
Not only are these jobs extremely time consuming if you’re not experienced in accountancy, but in completing these tasks on a daily or weekly basis you end up dedicating your time working on the business instead of on it. In turn, this prevents you from looking at the business finances objectively and in making objective decisions that are likely to propel the business forwards, therefore hindering growth.
Shift Your Money Mindset
Having the right mindset towards money is imperative.
So many people have plagued attitudes towards money as a result of their upbringing, where they either view it as a scarcity or simply don’t know how to manage it. There is a wealth of material out there via books, audio books, podcasts and online courses designed to help individuals change their relationship with money and for anyone with mental or emotional barriers this is the first course of action I suggest taking.
Ultimately, without stable finances and cashflow, there is no certainty in business, but unfortunately it is one of the areas business owners often neglect. Taking the time to create viable financial processes and employing a strong accounts team will, therefore, not only improve chances of business survival, but will enable you to emerge stronger as markets recover post COVID-19.