Have you made it through your first quarter of trading? Congratulations! Here are our top 5 tips on how to plan for growth in the early days, to give you the best chance of success.
Let’s get the less than positive news out the way first…
Over half of new business in the UK fail in the first 5 years* There can be many reasons for this, but failure to plan your finances, especially in times of growth can be a major factor.
We passionately believe that investing in services, equipment, people and the like, can generate you further income and support your business growth is key to survival and success.
Investing in some professional help with your business finances lives firmly in this category!
- Get a handle on where are you going
With this we don’t necessarily mean ‘do a business plan’.
Business plans are super helpful at the start, but ultimately it’s more about having a target and goal in mind – where you see the business in the future? This could be 1 year, or 5 years or more.
Information and studies from various sources suggest that successful people generally have a longer term outlook on their plans/plan further ahead.
Consider the below questions to help you on your path:
- Do you know what the business will look like when ‘it’s finished?’
- How much money do you want to earn in the next 12 months?
- What is my ‘survival income’ personally?
- What does that ‘survival income’ look like in 5 years’ time?
- What would your sales need to be to make this a reality?
Even if you just have a sales/income target, knowing you have something to aim for is a real driver in these early stages.
2. Understand where you are now
The minimum any serious business owner should look for is ‘current’ financials on a regular basis. An idea of your expenditure and how much money you are making (on paper in and cash – these can be different) is key to business success.
The majority of our business clients are on a ‘cloud’ accounting solution. This is one of the best investments you can make if you are serious about making your business work.
Depending how often you (or we) do your book-keeping, you can literally have ‘live’ data. Whilst this is the goal, even monthly or quarterly data is really useful for knowing where you are, so you can answer questions like:
How much did I actually make (presuming I have received all the money I may be owed from customers)?
What is my ‘gross profit’? (The amount of money you made from sales after deducting what it cost to make the service or product)
What is my ‘net profit’ (The amount of money you made after deducting all of yours costs from your sales)
What is my ‘net profit after tax’?
Moving on from the basic information like this, you can look to see ‘how much actual cash have I made?’. For some businesses this is easier than others, a lot depends on whether you buy or sell on ‘credit’ (i.e. do your suppliers give you time to pay, do you give you customers time to pay).
You also want to look at the overall status of your business after the money you have drawn, or what money is there in theory for you to draw on (for example due to credit terms mentioned above you may not have all the money you are owed, so what is ‘real’ figure).
3. Pay yourself first
Ok, ok, this one is a little misleading.
Often as small business owners you can feel like you are the last person to pay (and often this is practically true), but the intention should always be to ‘pay yourself first’. Arrange everything in your business so this is the priority. You have all the risk and worry, and without you there would be no business in these early stages. Without being able to survive personally (you and your family) there will be no business.
We have heard some clients say ‘I am not looking to make a fortune’, and lifestyle can be a great goal, but making money and growth is a must if you want long term stability. Once you grow to a level that you are employing people, then making profit really becomes a duty and responsibility to those in your team.
Getting key financial information is critical to this, as the flip side of this point is later on, ‘over drawing’ profits from the business can also lead to the business failing.
4. Plan to win with tax (and how to reduce this)
There are few easier ways to increase income than investing in someone to save you tax. It takes no effort on your part, just decent, up to date advice. The right business structure and knowledge can literally put money back in your pocket. This should be a priority for you.
5. KNOW your cash
Ever heard the phrase ‘cash is king’? You probably have, and this is because it’s true. Lack of cash can cause business failure, and also stop your growth. What is worse, is not knowing where you are with your cash. Can you take on another employee and really push out? Do you KNOW if its possible? Would that just cause the business to collapse as you run out of cash? If I took a loan now, could I do this earlier?
You need to know this. If you don’t know, how can you make an intelligent decision? Information and knowledge are key to making great decisions.
Investing either your own time or that of a professional to work out regular ‘cashflow forecasts’ and scenario planning can really change the outlook of your business.
Want to find out more how we can help your fast-growing business? Visit our page dedicated to the services we offer for growing businesses.
If you are not quite there yet and want to understand how to get started, then read our Blog on how to get your Start-Up business off the ground.
*Office of National Statistics figures.