Set up for success: 7 money management basics for building a sustainable, profitable business

If you’re starting out in business, you may have heard some less-than-encouraging figures about your chances of success. For example, statistics from the 2020 Australian Small Business and Family Enterprise Ombudsman’s report show roughly one in three won’t last five years.

Fortunately, many small businesses do thrive. Starting out on the right financial foot can go a long way towards optimising your likelihood of building a successful, profitable, long-lasting business. Here are seven money management tips to help you do so.

  1. Have a business plan

A plan is key to building a successful business and a requirement for getting business finance. While it doesn’t have to be a book-sized document, it’s worth taking the time to create a business plan to suit your goals.

Depending on the scale of your business, your plan might include elements about your budget, financing, key staff, revenue predictions, marketing strategy and more. See Business.gov.au for more, including downloadable templates.

  1. Stick with your budget

It may sound like money management 101, but budgeting can be overlooked amongst the more exciting aspects of starting a business. An important part of a budget is mapping your projected cash flow. You’ll need to balance predicted income from your revenue streams against expenses such as labour, equipment, and operating costs.

Once you’ve created your budget, stick to it as closely as possible. Avoid any additional expenses unless you’re sure they will boost growth and you can cashflow them successfully.

  1. Have an emergency fund

While a budget will keep you on track, what happens if you encounter an unexpected situation? An emergency (or contingency) fund can help ensure you stay afloat should the worst happen, such as a natural disaster, economic downturn, or surprise expense. Aim to have enough money to cover you for three to six months, available in an easy-to-access account.

  1. Track your tax

If your business flourishes or has a sudden growth spurt, you can become a victim of your own success tax-wise. To avoid a nasty surprise at tax time, keep track of your profits and understand their tax implications. Your finance professional can provide more information about balancing out tax payments, such as by paying monthly or quarterly installments. The ATO is aware this can happen and has provisions for businesses facing an unexpectedly high tax debt. See the ATO website for tips on preventing a tax bill.

  1. Establish a cashflow-friendly billing strategy

Excessive cash tied up in unpaid invoices puts strain on any business and can hamper your growth. Consider ways to ensure you get paid promptly, such as shorter payment terms or offering discounts for early payments.

  1. Get professional advice

Starting a business usually involves juggling several tasks, such as marketing, accounting, and human resources. If money management isn’t your strong suit, getting help from a professional business accountant, financial planner or business consultant can be a great investment.

  1. Take advantage of lending

While getting a loan may seem intimidating, the right type of business finance can set you up for success. Many business owners need finance for things like vehicles, plants and equipment for getting started. Financial products can also help you manage cashflow and capitalise on growth opportunities, whether you are looking to secure against business assets, personal property or wish to have no security at all . Invoice finance, for example, can unlock the capital in unpaid invoices, while trade finance can facilitate dealings with overseas trading partners.

The important thing is finding a solution that aligns with your business circumstances and goals. We offer a range of flexible finance solutions to help new businesses get started on the right financial footing. Speak to us today to explore your funding options.

by Sophia Auld – journalist