Money. For a small business, it can be an everyday hurdle. And if you are thinking about starting your own business, money is something you should think about long before you make that first sale. Even before hitting the books and calculating a break even point, I want you to consider your thoughts and your attitude towards money. Does it scare you? Do you not understand it? Do you avoid it?
In working with small business start-ups, I classify the way small business owners look at money into three categories: the Thrifters, the Riskers, and the Drifters.
The Thrifter
As a Thrifter, you are a business owner who has been saving diligently ever since you knew you wanted to “start my own business”. You are not only good at budgeting but you take your budget very seriously. You like knowing where the money is going to come from. You leverage your comfort with money management and save diligently, creating a nice little nest egg to cash flow the business through that first year or so. You are happiest with cash on hand.
The Risker
You are pretty good at financial management and have a good sense of money. You intuitively know your cash flow without strict budgeting. You are more comfortable with risk and therefore don’t accumulate a large nest egg. You may accumulate just enough and then move forward intuitively believing you can cash flow the business. You don’t see income and expense as black and white but fluid. You are comfortable riding out the waves of variable sales and may even thrive on your cash position fluctuating daily.
The Drifter
You aren’t sure about money and that’s OK. But, you are somewhat sure of your plan and somewhat sure of your numbers. Numbers don’t come easily to you. Understanding break even point and cash flow analysis is a struggle. You are more anxious than scared and venture into your business day by day, drifting along. You drift mostly because it’s a form of procrastination towards something you hate or don’t understand.
As a small business start-up, it is not a problem which category you fall into BUT it is important to identify how you view money and how this will affect the management and cash flow of your business. Follow these tips to enhance your relationship and understanding of money and how it can influence your business operations.
To get your funding on track, I first suggest adding a CPA to your team. Investing in someone who can help you budget, plan, and forecast is well worth the expense. Your CPA can also advise you on what is the best mix of funding – personal or family loans, bank loans, grants or engaging investors.
Next, form a good relationship with your local bank. Depending on your business, a large bank with an extensive network such as PNC may be a good fit. If you are an Erie business serving the local community, a local Erie bank like Marquette or FNB may be just the right size. A smaller bank will provide you friendly team members who can help advise you on the various resources and products they have to help you grow your business.
Another positive step is to take a class on basic financial reporting or grab a book at the library and read up on it. Learn what a balance sheet will tell you. See the value in a P&L. Be able to see ahead with your cash flow.
Identify some key indicators to review each month or every quarter. Talk to your CPA about indicators relating to cash flow such as sales, sales pipeline, average receivables collection time and average payable time. Select a few that are easily calculated and will hep you understand the health of your business.
Making Sense of it
As a small business start-up, it is important to identify how you view money.
It doesn’t matter if you are a Thrifter, a Risker or a Drifter. No matter how you view money, here are a few steps to help you have a great relationship with money:
1) CPA - Hire one.
2) Local Bank - Get to know them and allow them to know you.
3) Learn! Take a class or read a book on basic accounting or money management
4) KPI - Identify some key performance indicators
Having a good sense of the cash flowing around in your business will give you peace of mind and reduce your stress level. And at the end of the day, a good night’s sleep is an added bonus to good money management. Sweet Dreams!