>Many small businesses run their business on the bank balance. What do I man by this?
Most business owners are experts in their own field, and they know how to create either a product or service, and make a profit. This works really well, when the owner controls everything, the bank balance rises, money is earned from the business and holidays and cars are enjoyed! In fact the owner is an expert at achieving a good Gross Margin. In fact the owner, sub consciously sticks to what they know, they are not accountant or business planning experts, but brilliant in their field.
The business grows, more staff are taken on, bigger contracts come to fruition, and larger premises are acquired. The fixed costs of the business rise, which may, or may not, be too great for the gross margin being achieved, however the bank balance continues to rise. The accounts are prepared by the accountant, and filed and all legal obligations are met, the business owner is very content.
Unfortunately some business owners, suddenly get hit by a very nasty situation when they cannot make a payment, usually to HMRC or the payroll. The business has grown, and the bank balance has dropped or disappeared.
In my experience, this is not the fault of the Business owner, he is brilliant at what he does, however he does not have the financial structure in the business to grow. There is a skill, the owner does not possess, the accountant will diagnose what the problem is, but not able to get involved in the business and resolve the business structural issues.
How do you avoid this situation, how do you grow, be successful, and have a long lasting business.
As a business owner, if finance and accountants etc are not your expertise, involve a friend, family member, external consultant who does have the expertise. Be very diligent at meeting people they have helped in the past, and 100% assure yourself they have the skills to help you. Are they as skilled at Financial Engineering, as you are skilled in your area of expertise, do you understand them, or is it all ‘double dutch’?
It is more of a safety net to start, but as the business grows their support will be invaluable, and you will not be ‘A Busy Fool’, and will have a very healthy bank account.
