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Overview
Having a superb product, soaring sales and stupendous customer service are undoubtedly some of the things which go into making a successful business. But all of this is irrelevant if you suffer a financial crisis. Without a sound stable financial position, the slightest shock can be enough to send your business crashing to the ground.
So, what can you do to ensure that all your hard work is not in vain? What can you do to make sure that a financial crisis doesn’t rock the boat or even sink it? Let’s take a look at what can cause these jolts and, more importantly, what you can do about it.
Business owners are usually not good recorders or bookkeepers! People who start businesses are the ones who have great ideas, see a gap in the market or have the personality to sell anything. They are not people who jump out of bed in the morning and say “Great, it’s a VAT and paperwork day today!”
If you are to keep your business on the straight and narrow, then you have to accept that there are going to days like this; you can’t avoid it. You must keep records of your sales, your purchases, how much you have, how much raw material or finished goods you hold.
Without these records you will very quickly lose track of where you are. You won’t know:
You are effectively working in the dark and this is not conducive to financial stability. So, what sort of records are we talking about? Nothing sophisticated. It can be as simple as a book with one page for your income and another for your expenditure. At least once a month total it all up to see how money you have made (I hope!). There’s a saying. ‘The people who keep records are the people who break records’ – so true.
Do you know exactly what your bank balance is today? Why is it important? Because if you are going to write a cheque you must know whether you have the money on your account. If you don’t that nasty Bank Manager may just bounce it.
Obviously, this can have a negative effect on your reputation; your credit will be damaged, and you may struggle to get support from your Bank and suppliers in the future. All because you didn’t check what your balance was.
Closely linked to keeping an eye on your Bank balance is how you handle your cash flow. There are 3 aspects to this.
Bigger businesses need to have a contingency plan for all parts of the business. A contingency plan is basically a plan which answers the question, “What would we do if this happened?”
What is your “if”? What if you lose your premises? What if your computer goes down?
For a small business the biggest risk is you! What will happen to your business if you fall ill or even die? Most small businesses are totally dependent on the owner. You do everything!
If you are ill enough for one or two months that you can’t work who will see to the customers? Who will get new ones? Who will see to the paperwork? Who will collect the money owed to you?
Having a budget will provide discipline to your expenditure. At the end of every month update it by including your actual income and expenditure then compare your budget with the actuals. Going through this exercise will give you more focus and what your business is doing. It can help you put things right by highlighting the problem areas.
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