Nothing feels more scary for a business than running out of money. A ton of effort goes in to getting more sales and raising funds. I usually focused far less effort on managing costs and the books. Both are important, but the latter is far more within your control.
You have to have the right money mindset if you are going to stretch every penny and make the right decisions when you apportion resources. Here is my suggestion for keeping things tight and more insights from my Inc. colleagues.
1. Set material limits.
When people first start to make real money they often want to buy things that they have been eyeing for years. This happens especially after a cash drought. Resist the urge to upgrade your lifestyle until you really have pocketed some serious dough. Sit down and decide what your home, car, and travel budgets need to be conservatively. Do the same for the company. Spend only on the minimal comforts required to keep people happy. Then when profits are big and bank accounts are flush, you can reward yourself with small pleasures that don't deplete the security.
2. Think of the revenue.
Before making a business purchase I always think, "Okay, how much time will it take me to generate this much revenue?" XX hours of work because I want (not need, want) a new computer makes that purchase a lot less attractive. The same goes for anything I decide will be nice to have but I don't need to have. That approach forces you to view every expense as an investment that needs to generate a return; you'd be surprised by how few things are truly a cost of doing business. --Owner's Manual
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3. Wait for necessity.
Never, ever spend money for anything unless you absolutely have to. Shiny new computer? Only if your old one finally gives up the ghost. New, larger office? Only if you've outgrown the old one. --The Leadership Guy
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4. Keep your finger on the pulse.
My best tip is to be in charge of your own money. I'm not in any way suggesting that you avoid financial planners, however, be sure to educate yourself by doing your own research so that you can make informed decisions. When I told my financial advisor that I wanted to invest a portion of my funds into the stock market and manage it myself, he begged me not to. I followed my intuition, knowing that I was taking a risk. I love my intuition when it guides me to such lucrative decisions! Sure, I've made my share of mistakes, but every one of them came with a valuable lesson. --The Successful Soloist
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5. Don't get behind on your books.
My best tip for managing money well is keeping the company books up to date. This seems like a simple and necessary concept to run a business efficiently. However, it's surprising the number of business owners I meet that don't keep their books up-to-date. On average, they tell me they haven't updated their books in three to six months. This lack of insight leaves them ill prepared for unexpected bumps in the road.
To the small business, cash flow is king and only by keeping your books up to date can you properly forecast your business. When developing your cash flow forecast, expect expenses sooner and payments from customers much later than agreed. It's only through a set of updated books that you will understand what's working and what needs improvement. --Lean Forward
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