9 things small businesses must remember about their money

“This business is about staying in business.” That was the view of a very senior member of the board of a multi-national company during a recession. On the face of it, it’s obvious – and yet companies in their hundreds fail to achieve it. More often than not, failure is about money management, or a lack of it. Here are six golden rules for small firms – especially those in their first couple of years. Follow these, and you’re more likely to be in business at this time next year.

The Board member was so right. But how does a small firm, or one just starting out, support itself financially, accruing the capital to support growth, and the ultimate target of profitability and regular income? These simple tips will go a long way to answering that question.

1. Customers aren’t guaranteed. If your customers are other businesses, they’re trying to stay in business and make a healthy profit too. If your product quality slips, or your prices aren’t keen enough, then customers will take their money elsewhere.

2. Don’t extend credit. 30 days is normal, beyond that customers are starting to use you as a source of free credit; enhancing their cash flow at your expense. The bigger the company, the more likely you are to be held to ransom with payment terms stretching to 120 days and beyond. Don’t rely on the timescale on your terms and conditions either; they’ll cut no ice with the big boys.

3. Know where to find finance. Back in the day, business finance came from banks. The financial landscape changed considerably as the world’s economies climbed out of the 2008 banking crisis, and now there are lots of alternatives to securing the readies for your business. Consider crowd funding or peer-to-peer lending, for example. Even if you don’t need them now, it pays to do your homework about how to use them for the times when your firm needs a financial fillip.

4. Don’t sell yourself short. Your pricing policy should be fair. Set a price too high, and you rob the customer; set it too low and you rob yourself. There’s no future in either, so work out a fair policy, and stick to it. Not sure how to do that? Check out point 8.

5. Get best value from your spending. Getting money into the business is only half the battle. The other half is keeping it there. Sure, you’ll need to buy things to keep the company moving, but before signing off on something, consider if it’s the best value for your investment. Is there a cheaper option? Do you really need the high-end barista-style coffee machine, with the chrome and flashing lights? Is having so much raw material stock absolutely necessary? Do you really need to travel, or could you hold a virtual meeting with video-conferencing? The answers to these, and so many other questions, have an impact on the amount of money flowing out of your business without adding value to it.

Trust Technology6. Trust technology. We mentioned video conferencing in the last item, but there are so many other ways technology can help you to be more efficient. Take the Solo Expenses money management app. Small enough to live on your smartphone, this cloud based expense management software has the power to gather information about spending and collate it so any organisation of any size, can see what is being spent, by whom, and on what. Only by having comprehensive access to data are you able to focus on it, picking out the patterns that will identify areas of unnecessary spending. Armed with that information, it’s possible to adjust spending to guard more money inside the business in readiness for the leaner times – which will surely come. What’s more, used correctly it can pay for itself many times over – a lesson learned by customers in 92 countries.

7. Don’t mix personal and company money. It’s your business, so it’s your money, right? Wrong. It’s only your money when you reach a point where a salary can be paid or a dividend taken. Even then, no matter how well (or badly) the company is doing, there’s a limit to what you can take out. How much (or how little) the company can afford will be explained by a good accountant, which takes us to the next point. Leave it in there for when there’s a sales downturn, like the one experienced by the woman in our picture.

8. Get the professionals in. Are you an accountant, a web designer, or a motor mechanic? No. Then why are you doing the company books, building its web site, or mending its van? You’re in business to provide specific goods and services, and that’s what you should be doing. Anything else just robs you of time to make your product better, or make more of it, or secure new customers. Do what you’re good at, and get experts in for everything else.

9. Credit check customers. (But only if you intend to give them credit). Credit checking can be time consuming, but start-up firms that do it are less likely to fail than those that don’t. Mind you, customers buying on line have got around that one by asking for payment up front. This eliminates the need for a credit check at source. Would that work for your business model? Perhaps it’s worth checking that out…