Avoid these common mistakes when managing your finances - both personal and for your business.
Managing a business profitably is not a lot different from managing your personal finances. There are more similarities than you think.
The key to running a successful business is your ability to manage cash flow. Even the best business ideas can fail if capital and revenue are not carefully monitored.
Similarly, if you overspend or mismanage cash on a personal level, you may find yourself with insufficient funds to retire on or have an unacceptable exposure to debt.
Ravi Govender, Head of Small Enterprises at Standard Bank says that by managing your personal finances in tandem with your business finances, you will ensure that both you and your business stay financially healthy.
“We are heading for some stormy waters; labour unrest has pushed back economic growth by 0.6%, the cost of borrowing due to the weak rand is increasing and interest rates are creeping up. Businesses who rely heavily on overdrafts for cash flow will begin to feel the heat.”
Govender says margins are being squeezed by higher costs of funding and higher fuel prices. People are tightening their belts and this will have an effect on virtually every business.
“On a more positive note, it is possible for any business to weather the storm of an uncertain economy. The key to survival is awareness, acceptance and a plan of action. By crafting a strategy for your personal wealth and the profitability of your business; you will not only survive the storm but come out of it in better shape than before.”
Govender advises business owners to avoid these common mistakes when managing personal and business finances:
1. Keep business and personal finances separate
One of the biggest mistakes that small business owners make is to use their business account as a personal account and vice versa.
If you adopt this practice you cannot keep track of the business and its profitability, especially if you are using debt to fund it. If you do not know what your net profit is, there is no way you can know how to increase it.
2. Develop a plan for your business and your personal finances
To be successful in business, you need to craft a financial plan and check it against facts on a monthly basis, then take immediate action to correct any problems. Like you would do with a personal budget, estimate how much revenue you expect to bring in each month and project what your expenses will be. If you need help, buy some business planning books, software, or use the services of an accountant.
Govender says: “An excellent tool to help you manage your cash flow is Standard Bank’s New Tablet app, which enables you to view your personal and business accounts side by side. It also provides you with a view of your insurance and even your stock broking account. Using technology to manage your finances saves time, money and effort.”
3. Review your plan monthly
If you make the effort to draw up a plan, do not leave it to gather dust in a file. Review it regularly and make changes as your circumstances change.
4. Think before you spend
When considering any new business expense, including marketing and sales activities, evaluate the increased earnings that you expect to bring in against its cost before you proceed to make a purchase. You can often increase your profitability simply by delaying expenses to a later month, quarter, or year.
5. Do not be afraid to get help
Many businesses are limited by being understaffed or by neglecting to use external expertise and services. If you want to grow you need to spend your time on developing the business and not filing and driving or trying to master an accounting package.
6. Pay yourself a salary
It is important to allocate an amount to yourself so that your personal financial objectives can be achieved. Each month that your business meets its targets, pay yourself the full amount.
When you miss your target, you should reduce it accordingly but not to the extent where you cannot meet commitments.
For example, if you had allocated R2 000 for entertainment in your personal budget, you can cut back on that. When your target has been exceeded you can pay yourself a bonus.
The bonus is of course always welcome and you may feel the desire to splurge, but it would be better used to build up a cushion to carry you in a leaner month.
“Writing yourself a monthly pay check will give you a strong incentive to keep your business profitable. Running a business can be very rewarding but success does not come cheap. Use every tools at your disposal to ensure that you use your talent in the right areas,” advises Govender.