This is the brutal reality of running your own business .... At the end of the day, if you don't have enough money in the bank to pay your bills, then it won't be long before you're forced out of the game. By all means, you have to be part visionary to start up a business - but you've still got to be able to do your sums as well.
So for this article, I went in search of someone who could offer us some good practical tips on how to control your finances and cash flow when you're running a small business. And I'm pleased to say that I found someone suitably qualified ....
Cherry Birch has over 25 years experience working and consulting in the financial services industry across Australia, the U.K and Malaysia. She is a Chartered Accountant who delivers tailored financial training to medium size and larger corporate sized organisations – but has a special interest in supporting small business owners gain greater control over their finances. Cherry is the founder of Financial Training Australia.
- What originally motivated you to start your own business – and what keeps you motivated now?
- Over the past 10+ years, you’ve consulted with many hundreds of business owners advising them on how to improve their financial management and control systems … What have you found to be the most common mistakes small business owners make with their finances?
- Cash flow can be a bane for small business – any quick tips on how to manage this?
In my consulting with the Birch Consulting Group, we have developed ten essential questions about cash management practices, that can assist business owners to identify whether they are maximising the cash in their bank account.
How many days stock do you need to hold? What are your current inventory levels of raw materials, work in progress and finished goods and do you closely monitor their levels in relation to your sales? Ensure you consider how quickly you can get stock to fulfil an order if the stock isn’t on hand.
4. Cherry, you’ve seen many new small businesses fail within the first two years of start-up – and yet others succeed....... In addition to the financial management mistakes that you mentioned earlier, what other factors have you found contribute to the success or failure of a business in getting through the challenging start-up phase?
Brian I am cautious about giving advice on this, since I no longer practice as an accountant, but here goes:
- Be clear on what you want - do you want someone to just do your books for tax purposes – for compliance - or do you want an accountant who is going to give you tips and advice?
- Again ask for recommendations from others
- Meet with a few to see if they speak a language you can understand!
I think this goes back to the question re cash flow.
Put together a business plan to ensure you have thought through the extra cash resources you need for expansion. Also challenge yourself to ensure you are not being over optimistic ...
Go through the worst case scenario, assess the likelihood of this and check that you could indeed handle it, if it has more than a 10% chance of occurring.
Cash flow is the hardest thing to predict, so do some cash flow budgeting for a few months and then compare it with the actuals to see how good you are at predicting cash flows. Hopefully this will give you confidence in going forward.
About the interviewer
Brian Carroll is the founder of Performance Development, a training business in Melbourne, Australia. He is an experienced management coach with a passion for helping people achieve their goals in life and business. You can find out more about Brian at his Google + profile