Putting Your Financial Wellness First
In the start-up world and social media there is a lot of smoke and mirrors. What do I mean?
Well, I am not alone in knowing many companies and individuals that are great at pretending they are very successful by popping up at loads of panels events and having what appears on the surface, a fabulous life. However, behind the scenes, look a bit deeper and they are not all that.
So, the biggest advice I can ever give is - learn to tune them out. What you see on Instagram and LinkedIn is carefully curated. If anything, it is a sign of low self-esteem*, if someone has to constantly post about their 'achievements'.
A major milestone should never be begrudged and of course, announce it, but 1-2 time a day posting about how they are 'killing it' - smell the BS:).
It is about your journey
Rule 1: Turnover means nothing. What is far more important in business is profit (and dare I say actual money in the bank).
E.G. You could have a company with £500k in turnover, but only have a profit of £20k.
On the other hand a business with a turnover of £250k but with a profit of £100k. I know which business I would much rather have (hope you are thinking the second business as well:).
Rule 2: Focus on what you enjoy. Who hasn't come across a customer or client that has drained the life out of you? Thinking back, was it really worth it? Did they refer you to other clients or customers? Did they require more time and money to deliver for? Did they take their time to pay you?
There is a balance to strike at the start. You have to create a positive cash flow to invest further in the business. However, there will be a means to an end mentality you will have to have with some customers/clients. You need to have in the back of your mind a route out. Keep the light at the end of the tunnel in your vision.
As you grow your business and you keep an eye on costs, you can afford to keep away from the toxic business. The key long term is to build up a 'war-chest' of cash that you can rely on to be more selective with new business.
Rule 3. Get paid. Listen to your gut and be clear on your terms. There has been a sharp rise in recent years of none-payment to SME's. Therefore, don't be afraid to walk away from a deal if there is a high risk of none payment.
Looking after the finances
While keeping the 3 rules above in mind, what in practice can you do to manage your money in a way that keeps your business sustainable and look after your financial wellness?
1. Budget for tax. To save getting into bad habits and losing track on VAT etc, what I would suggest is having a ring-fenced bank account for taxes. If you are VAT registered, every time an invoice is paid, transfer the VAT portion to a separate bank account (do not transfer net of other expenses you can claim). That way you cannot spend money which isn't really yours to spend.
Then every quarter, look at your P&L if in a profitable situation, estimate your potential corporation tax for that quarter and transfer to your tax bank account. Depending on your bank, often these saving bank accounts actually have a better interest rate than a personal bank account!
If you are wondering why I mentioned not to transfer VAT net of claimable expenses, think of it as a way to inadvertently save. A bit like those banking apps that ask you to round up your coffee spends.
You can apply the same principle to other types of ring-fenced spending. E.g. saving account for staff wages, a future large investment in equipment etc.
2. Go green. While there used to be a stigma to buying second-hand equipment and fixtures it is now more than ever a badge of honour and amazing PR to show your green credentials. What may have been seen as penny-pinchings like using e-cards and email in the past, you can now say with pride 'we are a paper-free office'.
3. Don't be afraid to negotiate. Once a year review all your outgoings. Utilities, contracts subscriptions etc. Can you get a better deal? Often when you threaten to leave suppliers, they will often offer a discount to stay. If you don't ask you don't get.
4. If you don't need it don't buy it. Make sure anything you are going to buy for the business adds value. If might be that you only need to rent certain equipment for an event, e.g. doing a pop-up shop. Why spend £2k on fixures that you have to store afterwards and transport? When you could instead hire for £200, once a year. Plus you can change up the fixtures annually to appear on-trend.
5. Ask for early payment discounts. For some suppliers, they will be happy to offer a discount for paying early. If you can afford to do so, why not help improve your margins.
Ultimately business comes down to being commercial and you will have to make decisions that result in cash being generated from activity. Getting 'loads of sales' doesn't mean anything unless those invoices get paid and you don't spend more than you make.
Therefore to reduce the risk of financial stress it will take a combination of sensible financial practices as well as preparing your mindset. Learn to tune out the noise from show off's and keep reminding yourself why you are doing what you are doing.
Even if it means setting aside time once a week to focus on you. That can be going for a walk, a yoga class, time with family & friends, finding a good therapist or even do a bit of charity work.
If you are feeling pressure to keep up with others remind yourself, what you want to achieve and how you benchmark your idea of success.
Who has to know that your Apple Mac is a reconditioned laptop? More fool them for paying full price:)
*Academic research has shown the relationship between oversharing on social media and low self-esteem.
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