This is number nine of a new series of articles – positive mindsets for a positive future. Over the next few weeks I am exploring some of the most frequent questions I get asked as a business coach and focus on both the challenges and opportunities each one presents.
No-one starts their own business thinking it will be easy. There will be many challenges along the way. Very often the difference between business success and failure will depend entirely on how you approach those challenges and reframe them into opportunities.
Today my focus is another topic that leads to lots of questions and comments – the need to understand and manage the money.
Learning how to manage our money is crucial to all business owners and of extra importance to SMEs where money is sometimes hard to come by!! It is a real temptation to think that just because we have money in our pocket we are doing well! We forget about the bills we have to pay, the taxes we owe, the staff we must pay on time, the equipment we need to buy and so on.
One challenge around managing the money is the assumption that it must be difficult or expensive if we need an accountant. Not managing our money well could certainly be expensive!
Start out with a simple cash flow and budget – this can be on paper or on a spreadsheet on your computer. There are many packages on the market aimed at helping SMEs manage their money (MYOB, Quickbooks and Xero are well-known ones in the Pacific). You might find it confusing to know which one to choose. My advice is to ask around – ask your bank, ask other business owners, ask your local Chamber or Business Association, ask your mentor.
Keep it simple! Especially at the beginning. If finance is new to you try signing up for a financial literacy or business finance course. It is worth putting in the effort to understand cashflow, profit and loss, break-even, budgets, point of sale, capital expenditure etc. The more you understand these terms the easier it will be to decide what you need for your business.
Online systems are certainly useful and secure, but a very simple business may not need anything so complex. An old-fashioned cash book and receipt book might still do the trick.
Whatever system you decide on, it must work for your business. It needs to help you estimate and record all expenses and record all income. Get into the habit of asking for receipts for everything you spend where at all possible and keep the business money separate from your own. It only becomes yours once you have paid everything you owe!
If you do not keep a record of everything you spend then you cannot manage it. At least monthly review your expenditure and see if there are ways in which you can reduce it or use the money more effectively. Stop and think before you make a large purchase – can you afford it; do you really need it at this time; is it the best use of your money; do you need a new one or will second-hand do?
Managing your income and expenditure is an essential part of running a good business. You cannot afford to avoid it. If you bury your head in the sand, you might be throwing away your hard earned cash.
Ask someone to help you set up a money management system that is right for you and avoid paying for more than you need.
Finally, when starting a business try to avoid a loan – it is not a good idea to start a new venture in debt if you can possibly avoid it. Maybe you start smaller or slower; maybe friends and family can support you; maybe you limit yourself by your own resources. All over the Pacific people go to NZ or Australia as seasonal workers and return with money to start a business. If you do this, plan ahead and think through what you need and where it is going to come from.
If you are tempted to borrow money, check out the terms and conditions and the interest rates before making any decisions. In the Pacific there are a number of small micro finance businesses aimed at SMEs. Don’t be too quick to take a loan – compare what is on offer and look for the best deal. Discuss your options with your mentor or an independent person before deciding to borrow.
If you need help with understanding or analysing money management or want some feedback on your own practices, then please get in touch.
I hope you have enjoyed this article. As always, please contact me if you have an interesting story to tell and are happy for it to be told. More challenges and opportunities next week.
Breadfruit Consulting (www.breadfruitconsulting.com) is a Vanuatu-based business providing advice, training, coaching, and mentoring to businesses throughout the Pacific islands. Breadfruit specialises in a range of business development activities including ‘business continuity planning and action’, helping businesses to survive in a crisis, designing and starting new, sustainable businesses. Contact firstname.lastname@example.org or email@example.com
Founding partner at Breadfruit Consulting.