It is a fact that one in three new businesses do not make it past their first birthday. Some say it is due to starting a business for the wrong reasons, while others claim it is a lack of planning or perhaps overexpansion etc. But Gary Epstein, MD of EasyBiz, the distributors of QuickBooks Accounting Software in South Africa and Sub-Saharan Africa, allots the reason to the inability to manage finances successfully. 75% of new business start-ups still rely on pen and paper or spread sheets to track their business performance.  The majority of start-up entrepreneurs have limited knowledge about the financial side of starting a business. Many a profitable business on paper has ended up in bankruptcy because the amount of cash coming in does not compare with the amount of cash going out. Understanding the welfare of your business requires more than looking at the total Rands coming in verses the total Rand going out.

To maintain a level of financial fitness towards a successful business the following steps need to be implemented:

  1. Getting the right tools
  2. Be prepared
  3. Establish a routine

Having the right tools from onset will save you both money and time. Be focused and define your priorities, book time in your diary, use an old fashioned paper filing system and a good back up system. Hardware is easy to replace, while data and everything you create on your computer is usually irreplaceable. Then your accounting software needs to be selected with care. If you are not from a financial background, finance can be scary, and all too often ignored. You need to select software that is easily comprehensible and as the company grows, the software will grow with the company. And as your finances become more complex, and you need an accountant or bookkeeper, you’ll still have the ability to check the company’s financial health daily, weekly and monthly.

As the mantra goes in business, cash is king. Ensure that your forecast projects 6-9 months into the future. Financial fitness within your business is the ability to understand all of your financial matters. Measuring in on the basics of your company’s financial position on a daily basis is more than just a to-do item, it is a necessity for your future. A healthy company generates a positive cash flow, meaning the money coming in exceeds the money going out. Checking up on the health of your business requires more than just the numbers in your financial statements – build an annual operating plan and have it in place before the next financial year.

Developing close and honest relationships with your suppliers is critical. Arrange payment terms from the onset and ensure that they are regular. If you miss a payment, communicate and give them a reason why. And advise them when they can expect payment. Never avoid a suppliers phone call.

If you need financing, question whether it is the right kind of financing and be realistic about the amount of financing you need to get up and running. When it comes to securing money to start, expand, or just continue your business, you’ll need to choose wisely. Some options will be too complex, and others too risky.  Remember that if it sounds too good to be true, it probably is. If you have a credible business plan, you may be able to borrow from a bank. If your business is likely to have peaks and troughs in its cash flow, it’s essential to be able to clearly illustrate these to your bank. Banks want guarantees!  Don’t over extend yourself; remember you will have to pay it back.

The day will come for most small business owners when they will need to hire somebody. Recruiting staff is an essential skill for any growing business and one that small companies cannot afford to get wrong. Hire professionals who feel strongly about what they are trying to achieve and that know your business. Ensure that you have a position description so that your new hire knows what your expectations are.

Finally, establish a routine – daily; weekly; and monthly. Even if you are a one man business have a monthly ‘board meeting’ with yourself, and finally a quarterly review. A healthy business knows what its differentiator is that makes it competitive. Always remain focused in your specific niche area.  This provides more value to your clients because you have honed your expertise in an area relevant to them, and second, you limit the competition you face. Successful and financially fit companies have a business plan in place and a realistic forecast with healthy cash flow.