We all have habits; some healthy ones, and some that are not so helpful. The thing about significant goals of any kind, is that they take a consistent effort over time to achieve. People with intentional habits manage to achieve their goals because they have a focused routine over time. In Part I — The Mental Game, we covered the mental habits that help business owners achieve healthy perspective and form a solid foundation to build profitable and sustainable business on. In Part II we’re using this platform to establish the financial habits that will increase freedom, efficiency, and profitability for business owners.
Manage Cash flow — weekly and monthly reviews to help you know what’s coming in and what’s coming out of your accounts
In a report by Xero, they found “70% of business owners say they’ve experienced cash flow difficulties at some time” Xero (Small Business Trends 2021)
Cash flow is crucial for business. Keeping the two main elements of cashflow in balance - accounts receivable (what customers and clients owe your business), and accounts payable (what your business owes suppliers) - is the difference between sinking and swimming. If you can be aware of, manage, and navigate your cash flow towards the profit line then you’ll be much better off.
Ebs and flows are natural depending on different industry or business-specific aspects including the business models, seasons, duration of projects etc. During the pandemic especially you might have seen some external forces that have disrupted your cashflow. Regardless of how much control you have over the disruptions to your cashflow, it is important to know what’s going on.
Habit: Check in weekly and monthly to review what’s coming in and out; book it into your calendar if needed. Keep an eye on these important components to help protect your cash flow:
- Your bottom line. Being aware of your bottom line will simplify your perspective, and help you work towards a basic business goal
- Invoices sent, paid, and overdue. Send those invoices out as soon as possible, don’t put them off. And, if you’re experiencing a disproportionate amount of late payments, think about implementing some policies to manage those or even incentives like early payment discounts.
- Be proactive by paying bills on time for your own peace of mind, and it will ensure they don’t pile up for later
- Be realistic about your cashflow projections as overestimating your cash flow could lead to trouble later on when you don’t have enough working capital to meet your commitments.
- Cash flow visibility. Online accounting software is a huge help when it comes to cash flow management. This will allow you to produce a cashflow statement with the click of a button. If you need help knowing what’s right for you, we’ve put together a guide to choosing your accounting software that you can have a read of.
Maintain a budget and regularly review it
Paying yourself, your employees, bills, putting away tax money and savings are all part of a healthy business budget. Having goals and working towards them will ensure your business is growing and moving forward. Having a budget gives you a simple expectation for your business and its results. It will also allow you to make informed decisions and identify any problems that may pop up as you go.
Habit (for new business owners): If you’ve just started your business, you might not know what to budget in advance as there’s no existing data. Try to create and review your budget on the first day of every month with your best guess. Doing it once a month will help you get the feel for what’s realistic and what needs adjusting for next month.
Habit (for the seasoned business owners): For those of you who have experience budgeting, and have last years budget data to reference, set your annual budget as per usual, and be sure to review it on a monthly basis, checking in and keeping track as you go.
Save for taxes
Knowing how much tax to put away and sticking to it is a really important habit for your business finances. This money isn’t yours for the keeping, so having it set aside as soon as it comes into your account will ensure that there are no tax bills at the end of the financial year that you can’t pay for. This will give you confidence and peace of mind. For up-to-date information on lodgement rates and tax thresholds, jump over to our resources page or if you are still unsure, feel free to contact our team and we’d be sure to help you.
Protect your time
For business owners, time is money, and that is why protecting it is an important habit in business. This may be as simple as ensuring you are paid adequately for your time spent, or it may be needing to set time aside to work on your business. Not all time is billable but time well spent will contribute towards making your business profitable in the longterm, so keep tabs on how you spend it.
- Get into the habit of tracking your hours spent and those of your employees. With online accounting software like Xero you can create projects and track your hours against your clients to make sure you bill for that time. Or, there’s a number of other solutions for tracking time
- Book yourself in for some ‘desk time’ on a daily or weekly basis. Block out this time as ‘busy’ in your calendar and set it to reoccurring. This will make sure you don’t forget, and prevents others booking you in first!
- Avoid the urgency trap. Left to its own devices, our time is swallowed up by urgent but often unimportant tasks. Weeks and months go by, and the important tasks (the ones that will take your business to the next level) so easily fall to the bottom of your to-do list. Eisenhower Matrix is a system that helps to identify all your tasks, and organise them into four categories; urgent/not-important, urgent/important, not-urgent/important, and not-urgent/unimportant. You can use your ‘desk time’ time that you’ve blocked out in your calendar to address the important tasks.
With the ever changing business and financial climate, reviewing, regulating and understanding our finances in our business will help us find good rhythms to create a healthy and flourishing business. We’d love to hear what habits you’ve integrated into your business world that helps you! And if anything we’ve said today has brought up questions around your own business and financial situation, we’re FCPA qualified to help in these areas and would love for you to reach out for a chat.