In recent years, a number of large businesses have gone into administration, and 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, one in seven UK small business owners have been left unable to pay their employees on time due to finance and cashflow problems, while earlier this year 31 per cent of B2C firms reported that they will run out of cash within the next three months.
As we begin to emerge from Covid-19 restrictions, there are a number of key changes business owners can make to improve their business finances, and quickly.
#1 – Calculate 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 those areas that can be squeezed to improve your bottom line.
With 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. Maintaining a strong marketing budget at all times is the key to not merely surviving in business, but truly thriving.
#2 – Know your numbers
Without a cashflow, you have no business, so it’s important to really know your numbers, both from a revenue and cost perspective and also from a cash perspective.
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.
#3 – Prioritise your processes
Most business owners review their accounts, P&L and expenditure only 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.
#4 – Define 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 dedicating your limited time working on these tasks on a daily or weekly basis means you are working in your business instead of on it. Becoming bogged down in minutiae like this prevents you from looking at your business finances objectively and making those decisions that will help to propel your business forward.
#5 – Change your money mindset
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, and these mental or emotional barriers can have a huge impact on how you manage your finances in your business.
Having the right mindset towards money is imperative, and there is a wealth of materials out there via books, audiobooks, podcasts and online courses designed to help individuals change their relationship with money, and shift their money mindset from scarcity to abundance.
Stabilising your finances
In these unprecedented times, it’s vital for businesses to be resilient and able to adapt to rapidly changing circumstances. Without stable finances and cashflow, this is simply not possible, and is unfortunately one of the key 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.
Mark Wright is a winner of BBC’s The Apprentice and director of digital marketing agency Climb Online