Most entrepreneurs do not want to be dragged back into the finances of their business. They – on their relentless journey onwards, onwards, onwards – often don’t stop to look at the most vital part of their business – the money honey.
I have covered this before but I can’t stress the importance enough – whether you are one of our franchises or my followers, or my friends do you really know what is going on in your business, do you really understand what you need to grow and are you delegating this to someone who knows a hell of a lot more than you do – because you don’t really understand it and feel secure in what they are delivering.
Because I have news for you. If you trust anyone to care as much about your finances as you do then you have a BIG problem. Golden rules are – only you have access to your bank account – or have to authorize all transactions – you have to understand and have provided all your figures for cash flow and forecast – and I emphasise UNDERSTAND and you have, have to understand the cash burn in your business – because the killer for all businesses particularly those that grow fast is not just the profit and loss – it is the cash flow. I always say that lack of profit is a cancer – it attacks your business slowly, but lack of cash is a heart attack – you can’t pay your wages, bills, suppliers – and that’s it. Game over.
And you’d be surprised how few people truly understand their PNL. I have a colleague who recently asked me to go through is accounts and he said I am happy to have made a profit this year, and yet he had no cash. When I established that his profit didn’t include his own drawing and that he was running a balance sheet deficit to cover his salary (which is illegal BTW) and his team were being paid 4 times more than he was, he was speechless. But his accountant hadn’t explained all this. And he bloody well should have. When I looked at the cash flow of this business unless he got some serious support and soon – and twice the amount he thought he needed, then he was in BIG trouble. And I mean BIG trouble.
Also – and I hate to tell you this but it’s true – you have to be meticulous on checking the activities of your accounts team – I have another mate in business who had £30k stolen from his business over a year or so by an account person creating bogus driver payments and paying herself. It was only when she started getting greedy and it was exponentially affecting his gross margin when he noticed it, I am aware of directors overpaying themselves into a directors loan account – which doesn’t show on the PNL BTW – and this only being discovered after they have left the business, I’ve known credit control staff to edit reports so proprietors don’t know the true picture of the aged debt and I have also known two FD’s to be so overwhelmed that they nearly sunk a company before it was noticed by the respective entrepreneurs because they were both caught up in their relentless mission forward, forward, forward. And I am not too proud to say we have had some of those difficulties in our business in the past too.
Finances can be scary but I can only say this is none way – there is nothing more important. Make Monday your finance day every week – number one in your weekly priority. Know your numbers. Keep an eye on your short-term and long-term cash flow. Know your debtor days, your creditors days.
And another thing – something I admit I was very bad at – pay yourself first. So many people in business pay themselves after employees etc. Don’t look at your PNL if you’re drawing and tax is not taken out of it. Your true PNL is after all your costs and tax and drawings. Don’t leave yourself with scraps – you work harder than anyone else in your business so you need to make sure you get paid, then budget everyone else after that. Got it? Good!
And check, check, check, check. If you don’t understand it, ask. If you can’t create your own simple cash flow and PNL that is a problem. You need to know this stuff. Know your true margin, know what you should be charging, know you cash business, and know your numbers. It’s not just important – it’s absolutely essential.
What’s nice is when you get on top of it suddenly you see more money in the bank. Like we cut our costs from 15% by simply being more aware – which has enabled us to invest in areas that can make our business grow even more. Our bank balance has increased month on month of late which is a lovely trajectory to see other than the mountain range it used to be – and we pay VAT and tax with ease as we have these lovely things called savings – which is super exciting! It can be hard to slow down to look at your finances but do NOT trust it to anyone else in your business – it is the most important thing – and you have to be all over it – not leave it to anyone else. As a great saying goes ‘where to focus goes the energy flows’ and in my experience, that is very true.
Start crunching your numbers. I am off to get my calculator right now!