Business finances do not need to be stressful. Business itself produces enough stress of it’s own. As we reflect on the year that was, it is useful laying out the common sources of financial stress that Entrepreneurs face and how to deal with those.
1. Do you know where Your Business stands Right now?
The right foundation is important in achieving your future 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 being 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 who you owe money to? How much cash you have in the bank.
Next to this, it’s important to note that the older financial information is, the less useful it becomes to the decision maker. 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’s that the world can be a very different place in a very short space of time.
2. Do you have a Buffer?
When I started my business I had a “Don’t Panic“ calculation I regularly revisited to relieve some anxiety when reality didn’t fit in with my plans. Startups work with a burn rate showing how many months until they run out of money. For an established business you have a profitability level and assets or facility buffer or simply put: How much can our revenue fall before we start losing money and when that happens, how long can we afford to lose money for?
In good times business 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 your business has enough of a buffer for unpredictable times ensures an often underappreciated financial exercise.
3. 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 and 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 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? Or is your time better spent growing your business, perfecting your craft or spending some time planning your next bold move?
With the tail end of 2020 in sight, a year many Entrepreneurs will gladly forget, it’s worth looking at the sources of financial stresses around you and asking: Is there a solution to this? You might find the answer is, Yes.