Is your small business struggling?
Maybe you’ve just started out and you find yourself wondering how to keep your new business on the track financially. It’s a tough situation, I know.
You have a juggling act to do – finding time to produce products and services for customers, continuing your marketing and advertising efforts going, figuring out how to get paid by customers, and making sure you have enough money to pay your business bills and still have some left over to take from the business to pay yourself.
In the years I taught financial management, I found three super financial sayings to help you remember some important financial principles that will keep your business on the right track, financially speaking:
Overestimate Expenses and Underestimate Income
Most businesses get into trouble in financial planning because they over-estimate the income they will bring in (net income, profit, however you want to say it), and they under-estimate their expenses.
We all do it, especially on the expense side. In any project or purchase, you figure up the costs. Then, I always double the cost and the time, and I might be somewhat close to the actual.
Under-estimating the cost of starting your business can mean you won’t be able to pay the bills until you are bringing in revenue. Or it will mean you must dip into your personal funds to invest in the business or loan money to the business for the project.
Don’t Spend All the Money
If I have money in my business checking account, I spend it. But not all of it. It’s difficult sometimes, when you have committed to things and you feel you must spend money to back up your commitment.
For example, let’s say you decided to hire an employee. You go along a couple of weeks with him or her and then you realize you don’t have enough work and you don’t have enough money. You feel bad, so you continue to pay the assistant even though paying his of her means not paying other bills.
‘Don’t Spend All Money’ means careful budgeting of business expenses and not taking on financial obligations until you are sure you have the continuing income to support these obligations.
Cash is King
This saying has been attributed to various people, mostly former GE Chairman Jack Welch. Continuing this quote, it’s been said: “Without cash, they take you out of the game.”
When we say, “cash is king,” we mean that, no matter how well you think your business is doing, if at the end of the month you have more bills to pay than you have cash to pay them, you are in trouble. So you scramble a little, borrow from your personal bank account. The next month, same thing. At the end of the day, at some point, your business will fail, because you have run out of cash.
Many businesses look profitable on paper, but they don’t have the positive cash flow (more cash coming in than going out) to keep paying the bills. It’s a strange phenomenon, but it happens all the time. It’s why so many new businesses fail.
“Cash is King” is also directly related to DSATM and under/over estimating. Managing your writing business financial life is as tricky as trying to figure out how to get your characters to cooperate.
These three “rules of thumb” for businesses sound pretty simple, but it’s not easy to make them happen. Careful management of your money, not over-estimating or under-estimating, and being aware of cash at all times, can help your business out of difficult times.