Business finances do not need to be stressful. Business itself produces enough stress of its own. As we reflect on the year that was, it is useful to lay out the common sources of financial stress faced by entrepreneurs, and how to deal with these.
Do you know where your business stands right now?
The right foundation is important in achieving your business and financial goals. Many entrepreneurs are really good at making plans, but are often a bit vague on their starting point and the details. All the best plans in the world start somewhere, and getting specific on the starting point can make all the difference.
In a business, your starting point is your current financial situation. Do you know the month-to-date revenue for your business? Your current tax position? Who owes you money, and to whom do you owe money? How much cash do you have in the bank?
Next, it’s important to note that the older financial information is, the less useful it becomes to the decisionmaker. Knowing where your business stands right now is more useful than knowing where it stood in February this year. If 2020 has made one thing very obvious, it is that the world can become a very different place in a very short space of time.
Do you have a buffer?
When I started my business, I had a ‘Don’t Panic’ calculation I revisited regularly to relieve some anxiety when reality didn’t fit in with my plans. Startups work with a ‘burn rate’ that shows how many months they have until they run out of money. In an established business, you have a ‘profitability level’ and ‘assets or facility buffer’ – in other words, a gauge for how much your revenue can fall before you start losing money - and when that happens, for how long you can afford to continue to lose money.
In good times, businesses often take on debt or spend financial buffers in pursuit of growth rather than leaving some for the proverbial rainy day. But when the tide turns - and it always does - businesses that have a buffer have the means to weather the storm.
Making sure that your business has enough of a buffer for unpredictable times is an often underappreciated financial exercise.
Do you automate and outsource?
Your bank can automatically send your bank information to your accounting system. With a simple picture from your smartphone, or a quick forward of an email, your documents can be electronically stored in your accounts system, and be available to your accountant. Your accountant can work on the same systems alongside you, without complex IT systems to support this.
Cloud-based tools such as Xero, ReceiptBank, GSuite and many more make gathering and sharing information for your business much easier - and certainly less stressful. It also helps to ensure that this happens in real time, while the information is still useful to you as the business owner.
And when you’ve hit the ceiling on what you can automate, do you sit back and wonder whether the task at hand is something you really want to be doing? Is your time perhaps better spent growing your business, perfecting your craft or planning your next bold move?
With the tail-end of a year many entrepreneurs will gladly forget in sight, it’s worth looking at the source of your financial stress, and asking yourself whether there may be a viable solution closer than you think. You might just find that – with the right know-how or support – the answer is a resounding ‘yes’.
ABOUT THE AUTHOR
Montaque Swanepoel is a chartered accountant and founder of CFO360. CFO360 has helped hundreds of business owners to streamline their processes and understand their finances so they can spend less time on admin, and more on the things that matter. Find out more at www.cfo360.co.za or get in touch at [email protected].