Hope for the best, plan for the worst. We’ve heard that a lot and the tax planning season, which is already upon us, takes elements of this saying into account. Saving tax to ensure you only pay your fair share and operating under the right business structure, form the backbone of strategies that help your small business help you. But there’s more to it than that.
As part of our Cash Rich Business workshop (June 2 and 15), we also highlight and signpost remedies to some fairly common and impactful business mistakes. There are 7 to mull over but one in particular can get lost in the shuffle because it isn’t a remedial or systemic error. It’s a behavioural/disciplinary/planning one.
CRB mistake #1 – Spending every cent you earn
This is turnover without the profit, it’s a salary without the bonus, it’s a job instead of an enterprise. Everything you didn’t want and nothing you did. By spending every cent that your business hauls in, you are essentially rebasing your business at zero every month, quarter and year. From month to month, you, your business, its value remain at a status quo. Aside from a salary, there’s no real advantage there and the reality is that nett-nett, nothing has been gained.
This is a difficult truth for every business owner who isn’t satisfied with simply breaking even year after year. It’s frustrating because you realise that a cash rich business should be providing you, the owner, more time and happiness and less stress and worry and yet it will not and cannot happen. Not unless you are actively building a war chest and putting you and your business in a position where opportunities can be seized as and when they arise and difficult circumstances can be dealt with thanks to a cash reserve.
While every cent is being spent, that’s not going to happen. Interestingly, the cause of these sorts of cash flow stalemates is often not down to reckless or thoughtless purchases…
It’s a question of timing, not spending habits
Capital expenditure is necessary and it often signposts growth and/or growth potential but as is the case with most things in life, timing is everything. Even the very necessary purchase of new office furniture or work vehicles can hurt your business if the timing is wrong.
A sound plan formulated between you and your team of numbers people (CFO, accountant, management team) after looking at your numbers will not only tell you when to buy but how to purchase. For example, an office refit might make sense for your business and the time is definitely right. Does that mean you should empty the coffers to make the purchase? Is there an opportunity to seek payment terms, if they are not offered? What are the pros and cons of leasing elsewhere instead?
By at least asking more of the right questions, you and your team will come up with ways to ensure that you don’t make the all-too-common mistake of periodically emptying the cupboard. You cannot be a cash rich business and enjoy all the benefits thereof, if you keep spending all the cash.
For more valuable insights into how to build a cash rich business, book your place at one of our workshops and experience the impact our tips, coaching and knowledge have on small businesses.