How are your relationships these days? Are things going well with your friends? family members? workmates? money? Money… you ask? Yes! Money! If you are going to have a successful business, you have to have a healthy relationship with none other than MONEY.
The vast majority of small business owners that I know have a relationship with money that can be best described as “dysfunctional”. The most common symptoms of a dysfunctional relationship with money are these…
Highly Variable Cash Flow – Businesses with a highly variable cash flow operate without a financial rudder. Without a strong working understanding of the ongoing demand for cash, highly variable cash flow usually translates to poor management of inventory, payables, receivables, and capital investments.
The Operating Account is Treated Like a Bank – All too often over the course of any given month, cash is collected for sales, then payroll, bills, and taxes are paid. What cash remains in the operating account is used to pay the owner without consideration for the future cash demands from the business.
Poor Working Knowledge of Accounting and Finance – Unless you’re an accountant or a financial advisor, you probably didn’t get into business with a strong financial foundation. Most business owners start their business with an idea or with an operational skill, then learn accounting and finance skills along the way. It is thus that business owners feel a certain sense of discomfort or insecurity with financial decision-making. Their financial decisions are hence not always in the best interest of the business.
Sound all too familiar? Here are some critical steps that will help you develop or time a healthy relationship with money.
It is important that you first accept the notion that money plays a critical role in enabling success. Money is a means to an end. Whether you define success as material possessions, a certain lifestyle, or to pay a fair wage to your employees, money is one of the primary means through which we can fundamentally influence the people and the world. Money is a powerful and important enabler.
Write down your financial goals and maintain a strong awareness of the financial performance of the business. The same rule applies to your personal financial goals. Reconcile your business accounts and generate financial statements, monthly. Track financial metrics against your goals and be sure to include the key elements of cash flow.
Be reminded that you should be paid fairly for the work that you do and as the owner, you also need to get a good return on your investment in the business. Once you’re making a fair and consistent market wage, you’ll get a better handle on the true performance of your business relative to industry peers. That will drive your vision for the business, make it more valuable to potential future owners, and enable better financial decision-making.
And finally… get help with building a strong financial skillset. Hire a CPA who can provide sound guidance on your business and who can help you develop financial and tax strategies that are aligned with your business objectives. Build strong relationships with a financial advisor and banker; both that will guide you with investment decisions during your success journey. Consider adding a Controller when finances permit.
