6 Points To Keeping A Firm Finger On The Pulse Of Your...

6 Points To Keeping A Firm Finger On The Pulse Of Your Numbers

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Financial management is often not given the respect it deserves in determining the long term success of your business venture.  While budgeting and forecasting may seem tedious, it is an area of your business where you cannot cut corners.

I am no financial whiz; I have simply learnt the hard way that this is an area of the business you have to pay attention too.

I’m sure you’ve heard a thousand times before that cash is king, but for me there are a few fundamentals that keep your business healthy.

1Make the right choices

The more you sell the more money you need for cash flow. This is where you start, by choosing your products and suppliers very carefully. With anything product based, it’s essential that you negotiate hard on the terms of payment.

Even if you have cashflow, always use other people’s money to free up yours, especially if it’s without interest (free money).

There are a lot of pitfalls on contracts so if you are not a specialist, make sure you get good advice. Although I do encourage getting a facility from your suppliers, watch out that you don’t over extend yourself.

Related: The Correlation Between Cash Flow Challenges And Risk

 

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2Budgeting and forecasting

Start your financial planning with sales forecasts and budgets and be brutally honest. The more realistic you are with your sales forecasts and overheads the better chance you have of reaching them.

Every business plan looks great on a whiteboard! Take your sales/profit projections and cut them in half and if you can still turn a profit then you on the right track.

3Financial goal setting

Financial understanding and management is also about setting goals, not the purchase of a Ferrari kind of  goal, but determining the amount of margin on products, the amount of staff, and staff salaries to deliver on what you sell, sales targets and incentives, skill sets required, operational running costs, possible CAPEX, predicting market changes and possible effects on margins and bottom line, forecasting for slow months, forecasting cash flow, obtaining the best rates from suppliers, negotiating terms to assist with cash flow, making sure you don’t over borrow.

You also need a financial management system set up that provides you the information you need to run your business.

4Get the right skills

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Getting a great and trustworthy accountant is essential, even if it’s on a contract basis initially. A debtor’s clerk is a great investment, especially if you have a big book. What you forecast and budget needs to be measured, at least monthly to understand where you are.

This not only provides valuable information on how you need to manage your spending, profits and cash flow; it gives insightful information about how different areas in your business are performing.

Related: 10 Expert Tips On Managing Cash Flow As A New Business

5Plan for every eventuality

That “feel good high” on an exceptional sales month is often followed by high fives and big spending before the money is banked. An order book of sales can easily fall to half for many reasons.

Oversold solutions, bad credit record, buyer’s remorse etc., so be sure to put measures in place to reduce eventualities such as these. Always judge cash on hand as money in the bank, not on an order book.

Retain cash for those slow months. While you may be on a roll and think it will always happen, in reality slow sales months do come; make sure you have enough cash flow to see them through.

6The numbers are everyone’s business

Make saving money and running efficiently everyone’s business. By incentivising people and departments to reduce costs and reinvent the efficiencies of your business, you are sure to win.

You cannot singlehandedly watch every cent and oversee every process, so work on a profit split of money saved. This will create a culture where everyone has a vested interest in the company’s financial wellbeing.

Related: Employing Your Cash: Your Secret Employee

Here are some tips I believe every business entrepreneur should watch out for:

  • Never trust anyone else to release payments out your bank account.
  • Renegotiate with your suppliers on a regular basis, and make sure to pass on some of that savings to your clients. retaining an existing client is cheaper than finding a new one.
  • Keep 3 months’ cash flow in the bank no matter how good sales get, and don’t forget to increase that cash flow with your overheads.
  • Growth and increased sales costs money, don’t over extend yourself, even with the promise of big profits.

Lastly, no savings is too small. Lots of little crumbs make a big bread.

Warren Bonheim
At 36 years of age Warren is the founder and CCO of Zinia, a highly profitable multi-million rand Internet Service Provider (ISP) and wholesaler that is growing 70% year-on-year since its inception in 2009. He started Zinia with his business partner Frank Mullen and from the outset ran the company like a big business with tight controls, a strong management team, statistics to inform decision-making and a process methodology that revolves around simplicity and innovation. Warren is the quintessential self-made entrepreneur: at the age of 22 he started and ran a PABX and Premicell business in the telecoms industry for seven years. His tech and business experience mixed with a passion for seeking “what’s next” is what makes him the successful leader he is today. Follow Zinia on Twitter.