There are not many SME’s that could survive for long if their cash flow dried up.
Companies are made up of hundreds of components that contribute to their success, from strong sales teams, excellent marketing, competent staff and great products – but if business owners don’t take care of the money they make, then, it doesn’t matter how well everything else is working, it could dry up in a few months.
Lots of people want to start a business but feel like they can’t because they have no cash injection. So, try to put money aside before you start, cautiously 6 months living costs would be a minimum, it could take up to 3 months to send your first invoice out and that’s if you have an immediate customer base. If you're eager to start your business but don’t have the cash, you may do this part-time on an evening or weekend alongside your main income to the point whereby the scales tip in favour of your business, over your current job.
Initially you won’t have all the staff you require, you could end up being the sales team, the marketing team, the cleaner and the director all at once. The sales team is key at this stage, getting the orders out or selling service to make the monthly amount you need is a must. Keep your expenses to a minimum for as long as you can. Don’t spend money on anything that is not absolutely necessary.
There’s lots of competition. A common mistake amongst business owners is the undervaluation of services. We know it can sometimes feel like you might lose a lead if you quote your first cost, your initial price, and the temptation can be to drop that cost in favour of securing the work. But quoting too cheap is counterproductive. You’ll spend the same amount of time working on their project as you would have on a project if someone had paid you the correct amount. If you fill up your time with work that you aren’t being paid enough to do, then you’re on a downward trajectory.
Whilst you should keep spending to a minimum, don’t be afraid to spend money on the important stuff. It’s about spending your money on the right things, e.g. as you grow and if you’re in desperate need of sales and marketing support to bring in more clients, it’s important that you invest in the necessary help you need.
Your time and the time of any staff that you have is extremely valuable. You should be utilising your time wisely. Every moment you have should be dedicated to achieving your ultimate goal, if you’re wasting time, you’re wasting money so make sure to really get organised and prioritise your time. This must include ‘down-time’ to reflect and look after your (and your staff’s) wellbeing.
And lastly TAX. One of the main reasons many businesses fail is due to poor management of accounts and failing to consider the correct tax owed to HMRC. For companies that don’t take this in to account those monthly tax bills mount up as do the fines, a hefty tax bill could appear as a shock and be the end of the business.
Jo Vernon
Business Development Manager