When we just focus on the money coming into our businesses by measuring our leads, sales and profit, we are only seeing one half of the picture.
A business could be turning over $1 million in sales but at the end of the year, the owner of that business still may not have seen much of it (or scarier still, any of it!) in their own bank account.
If you want to move from a state of cashflow chaos to cashflow calm, here are the 5 red flags when it comes to money management you need to pay attention to:
You’re not paying yourself a regular ‘wage’
This is surprisingly more common than you might imagine, especially in female-owned businesses. According to the Australian Women Chamber of Commerce and Industry, in a survey they ran “only a very small percentage (37%) of respondents believed they were paying themselves a market wage when they actually paying themselves a wage at all.”
THE FIX – Ask yourself the question what is stopping you from paying yourself first? If every decision starts with your money mindset, make sure you are aware of what’s stopping you so you can change your thinking and change your results. A great resource about shifting your thinking to pay yourself is the book “Profit First” by Mike Michalowicz.
You don’t know what your cash flow forecast is for the next 3 months
An American study into why small businesses fail, found 82% of business owners put it down to poor cash flow management skills or poor understanding of cash flow. If you want your business to succeed into the future and get off the roller coaster ride of feast or famine, then this is essential.
THE FIX – Most accounting software has cash flow projection reports built-in so check out the help pages in your software of choice. If that’s all too confusing, start with a simple spreadsheet. Your industry association or State Government website will have examples to get you started. I had been using a spreadsheet for the past 2 years in my business so when Nicky and I went into Business Together, we used that as the foundation and have adapted it to suit our needs. Be sure to yell out if spreadsheets scare you, I’d be happy to help!
You aren’t making the most of Accounting Software
Over time the ease of use of accounting software has improved dramatically. According to Xero chief executive Steve Vamos, “The past year has brought home to many people in small business the need to understand in real-time their financial position and how it may change.” Gone are the days of complicated excel spreadsheets that become a burden once your income increases.
THE FIX – I was hesitant initially when a Bookkeeper recommended I set up the cloud-based accounting software system Xero, but I have to say I have never looked back! When Cam was a baby (nearly 20 years ago now!) I did quarterly BAS for a friend who ran a business and he would give me his quarterly receipts in a shoebox #truefact! Now I scan my receipts directly into the app on my phone and attach invoices so everything is in one spot. It’s easier at tax time too, my accountant just logs in to get all the data he needs to complete my tax returns. Check out Xero, MYOB or Quickbooks to see which software is best for you.
You haven’t reviewed your auto subscriptions and annual expenses for over 6 months
Our business needs change over time and we are fortunate to have so many solutions at our fingertips. The number of apps that help us is amazing, and some of them are so affordable ‘if we buy now!’ we decide to sign up for them thinking we will use them in the future. But are they still being used 6 months later? I remember signing up on an annual subscription to have ‘pretty links’ on a website I didn’t update in a year. Then it auto-renewed for another 12 months and I was two years into paying for something I NEVER used. Sound familiar?
THE FIX – Block some time out in your calendar each quarter or at a minimum every 6 months to review your subscriptions. Ask yourself whether you are still getting a return on investment for them. Or shop around to see if you can get it for a better price. I do this at least bi-annually for my insurance and have saved money every time I do.
You don’t have an emergency fund to tap into when the sh!t hits the fan
Hello, 2020! This was the year that we all heard about emergency funds and I’m not sure about you but until last year, it was something I was going to get around to ‘someday’. I kicked myself for not putting money aside in 2019 when my income was at its highest. Instead, I made big-dollar investments in other areas of my business which although were worthwhile, didn’t provide much security last year when all my booked work cancelled in less than a week and I was left looking at an empty diary and soon to be an empty bank account.
THE FIX – Figure out what your monthly expenses add up to (including your wage) so you know the target amount you are saving. Most experts recommend having at least 3-6 months of expenses covered for you to tap into when you need to (e.g. a global pandemic, getting sick, a slow down in business). The best way to save this is to set up a separate bank account and automate a set amount to transfer each month. When business is going well, increase the amount you put away. And remember, any amount is better than nothing. So keep your eye on the target and make small regular payments if needs be.
If you find yourself in a position where one or more of these red flags is waving at you, don’t despair! There is a way out if you have a plan. And if you don’t yet have a plan, we’re here to help.
We have created our unique business methodology for women looking to release the weight of expectations of how you should be doing business so you can thrive and create a business you love, whilst still enjoying life outside of work. The True North Wheel, which includes a focus on three key areas of business success – business growth, money management & prioritising life – is a powerful force of change for any business to not only survive but also thrive.
Get in touch to find out more.