3 financial tips you can’t ignore

Start a reserve fund
As a small business owner, you probably operate without a safety net–either out of a perceived lack of funds to build one, or a lack of foresight on why having one is essential. I know it’s never easy, especially in the early stages of building a business, to carve out funds for something that seems somehow non-essential right now.

When I think about the difference it would have made if, weekly, I had set aside even a very small amount of money in a reserve fund, I know the amount accrued over time would have been very helpful to handle everything from seasonal slow-downs to tax obligations to unexpected increases in orders.

Build a contribution to a reserve fund into your operating expenses and you’ll construct a safety net as part of how you do business rather than as an afterthought.

Focus on margins, not just sales
Sure, like most entrepreneurs, you enjoy seeing sales numbers growing, and you often live and die by those numbers when assess the health of our businesses.

This number is meaningless if you don’t also look at margins. Why? Because sales only matter if they are healthy sales. A company that sells £100,000 worth of merchandise on which it makes 10% profit is a much healthier company than one that sells £100,000 on which it makes 5% profit. Yet the owners of both companies, if they rely only on sales figures, would seem to be equally successful.

If I do not watch the margins carefully, my company will not continue well because the money to increase product lines and provide top-notch service will dry up. If you focus more on maintaining and improving margins, you’ll improve your company’s stability, and guarantee you’ll be able to stick around long-term.

Monitor regularly
Chances are, you don’t look at the financial components of your business as often as you should. But you need to look at operating expenses, labour productivity, and profit margins on a regular basis (once a month is a good routine) if you want to catch problems before they come up.

As I began to chart important data, I began to see connections between parts of my business that I had not seen as inter-related before. For instance, the total amount of money that could be allocated to employee salaries–once a grey area–suddenly got distilled into a simple formula.

With that formula, deciding when and if I have the money to bring on an additional employee at a given time, became much easier. The best way to grow your company correctly, however, lies in organising and understanding your data well. Committing to keeping the financial nuts and bolts of your business in a format that allows you to mine data quickly is essential to evaluating your business on an on-going basis.

Accountants aren’t the only ones who should understand money. Every business owner–non-numbers people like me included–must know what the pounds generated really mean. If you get a grasp on these statistics, you’ll help protect your business against unforeseen market shifts, economic difficulties like changes in bank lending, and much more.