Working with a wide variety of businesses and business owners I frequently see how different attitudes to business finance affects business development.
There are business owners who are careful with every penny, only spending on things they really need in their business. Whilst this is a good thing it may also mean that the business may not grow and develop without a bit of risk taking and investment.
There are others who will always spend on the the latest gadgets and the newest equipment. These may not be things that are needed but make the business owner feel rewarded for their input.
Some business owners meticulously plan ahead for new purchases knowing when they will need to buy new equipment, update their software or invest in a capital purchase and will maintain a regular cash flow forecast. This type of business owner will know exactly what they need to get their business to the next level.
Others will have no plan at all and will wonder how they can find the funds to get their most vital piece of equipment fixed or replaced. They will always wonder why they never have any money in their business but never realise that they are taking more cash out of their business than the business can afford.
What is surprising is that when some individuals become a business owner they believe that the money in the business is available for personal spending. As an employee they were responsible for buying their own lunch, but now they are a business owner they believe their business can pay for their lunch. And it doesn't matter if there is a parking fine or a speeding fine because the business will pay. Having dinner out can also be put through the business because work was discussed or going away to a hotel for the weekend on the pretext of business planning can be paid for by the business.
These expenses are not tax deductible expenses and they are draining the cash in the business.
How many times do business owners tell their suppliers payment is delayed because they are waiting for payment from a customer. If these business owners really looked at their accounts they would see that they have been using the cash themselves. Is this fair to the suppliers? Does it matter if this is why customers pay late? Is this fair to the business, its reputation and its growth? How can a business develop if there is no cash to invest in a new employee to relieve the pressure, a new printer or some necessary training.
Spending from the business account should be limited to business costs and wages with the business owner taking a single regular amount to their personal bank account for personal spending. Not only will it reduce the time the person keeping the accounts has to spend allocating personal transactions before reconciling the bank account (less time = smaller bill = more cash in the business), but it will give the business owner a much better idea of how much money they really need for personal spending.
The biggest advantage of all is that there will be cash in the business bank account to pay for a computer repair, to buy a new printer or employ a new member of the team.
Successful businesses will have owners who know what the costs of their business are, will not drain it of cash and will plan for future growth with a cash flow forecast.
Keep control of your spending and see your cash flow improve and your business flourish.