(By the way, if you prefer listening to reading, catch the Growth Code® podcast on Spotify, Amazon or Apple).

Have you ever noticed when you have a limited amount of something you can always make it stretch? I’m talking about life in general, when you’re down to the last squeeze of toothpaste, the last drop of fuel in the tank (I drive my husband mad leaving the car until it’s on fumes but it’s a hybrid so we can plug it in!) It seems we’re hard-wired as humans to make do with what we have. The same is true when there’s abundance. That’s called Parkinson’s Law where anything will expand to fill the space it’s given. If you’re going on holiday you can amazingly get all your work done, the more money you have the more you’ll spend… sound familiar?

When it comes to running your business, sometimes we find ourselves doing that in between checking the old online banking. Sometimes refreshing the bank feed waiting for a deposit to drop before payroll. My husband reminded me this week of the time I took drastic and dangerous measures when things were desperate. We had a restaurant client who had several outstanding invoices, he was dodging calls, not replying to emails or responding to letters. One day I had enough, drove down to the restaurant and he hid in the back. I subsequently parked my car so his customers couldn’t leave, come to think of it that sounds like a hostage situation. I made a little bit of a scene until he came out from the back and I confronted him about the branding, signage, interior design, printed menus that he was happily taking advantage of in the shiny new restaurant but hadn’t paid for.

Ok back on track. When that deposit does drop the balance looks fat and juicy, everything is ok and you take a breather. Maybe buy that fancy new coffee machine and pay some bills. But other times, you’re scraping the barrel on the count down to payroll day, you feel the hop-skip in your chest and your hands are a bit sweaty. It’s time to hustle, you send those invoice chasers you hate sending, you chase up those outstanding quotes, push those jobs over the line and maybe you pay your bills as late as you can.

I haven’t even got to the kicker yet, the thing that really stings. You are the risk-taker, the one who’s created something that didn’t exist before and your reward is that you get paid last or maybe you don’t get paid at all this month.

Awesome, you set out to be your own boss and this roller coaster is now the boss of you. Business owners eat last. It shouldn’t be that way and it doesn’t have to be. If only we could call upon that natural resourcefulness I mentioned at the start (but without the hostage situations).

I am on a mission to help business owners crack the growth code and make their businesses permanently profitable. You see, I hear so many stories in my role as a business coach about business owners who are not spring chickens yet don’t have a pension plan. A business owner who’s had to deal with her business flooding, paying for all the repairs and she’s not taken a salary for months. Or hearing from someone who’s lost him home as a result of a business failure only to have a heart attack while starting from scratch.

Entrepreneurial poverty

Yet your relentless work doesn’t free you, it drains you. All while flirting with entrepreneurial poverty. I talk about business growth a lot and it doesn’t make sense to do that without taking a little time to talk about financial health. So if you’ve ever sat in front of your accountant who’s reading your Profit & Loss telling you that you’ve made six figures in profit but you’re wondering where the cash is, join me on a little journey to bust some myths and take tiny steps to change the financial health of your business. (Spoiler alert: you don’t need to make drastic changes).

Where’s the money?

Have you ever heard the phrase it takes money to make money? Well, I think it’s an absolute load. We’ve proven in every other aspect of life that we can make do with what we have yet somehow in business that ability to be so resourceful gets squashed.

I was born in Zimbabwe and grew up there until I left for University at 17 and moved to the UK when I graduated at 20. There’s a phrase, a saying that I grew up with that roughly translates to “well, a man makes a plan.” And there’s a Shona word ‘tinogona’ and roughly translated as there’s no direct translation, it means “it’s achievable” or anything is possible depending on how you use the word. It’s within me and I want you to summon that deep resourcefulness that’s in you because you don’t need money to make money.

As business owners, we’ve all been there. When the going gets tough and you start to go into mission state critical. We try to quickly create an offer, diversify or take any scraps of sales you can get. It is most often to the detriment of your long term game, your values and yes, your cash flow. You plough effort (and money), time (which is money) and resources (more money) into these vain attempts only diluting the core focus of the business. And the core aim of the business should ultimately be profit. But why do we talk about profit last? It actually takes money to make less money if we want to get philosophical about it.

The point is, what if we flipped the traditional model that’s been drummed into us for years and years on its head and stopped focussing on more sales, more revenue, more clients, more products, more services first? What if we focused on profit as the main aim of the game?

Where your focus goes, your energy flows. If you focus on getting more sales and focus on reducing expenses (not bad things to do) you still don’t have a big spotlight on profit. Profit is like the little outcast kid who gets picked last to be on a team.

Profit. And not just the profit but the cold hard cash kind. It sounds absurd, go with me and indulge me for a moment.

Making do with what you have

I remember when I was a kid heading off to University to fend for myself for the very first time. My parents gave me a life lesson in budgeting that I’ll never forget and I will always be grateful for. Dad always told me to pay for the roof over your head first, he told me other things too (and I wish someone had passed that advice onto some of our tenants but there you go).

Back in those days, online banking wasn’t a thing (neither was Facebook) so I would go draw my monthly budget out in cash and put everything into separate pots. Envelopes actually. Side note, Dad also told me when I started my first business to always pay the tax man, it’s the one bill you can’t leave because “borrowing” from the tax man is kind of like stealing.

I’ll never forget the little coloured envelopes I kept hidden in a basket next to my fireplace. Yep really secure. A red envelope for rent, a blue one for expenses, a yellow one for food and fuel, a green one for fun. I was always told to put 10% aside for a rainy day fund and save 10% no matter what. Those were put into a bank account that was difficult to draw from, a long term saver sort of thing. You get the idea. The funny thing was, just because there was some structure to it I never borrowed or stole from the other envelopes, it just didn’t cross my mind. And I always managed to make do with what I had. In fact, I never went without unlike a lot of my University mates who were always skint. It sucked really, no-one had money to take trips or do spontaneous things which I love to do. I love making memories.

How the hell does that relate to business?

I’m getting there. Since being in business and when I had my agency business not only did I hire a virtual finance director but I also learned from the great Keith Cunningham on how to take the road less stupid. I had a burning question that always baffled me. I sat down with my virtual FD one day and we were looking at the year-end numbers. Lee said I’d made a net profit, it was sizeable, six figures in fact. I distinctly remember looking at the bank balance and saying, “oh great, but where’s the money?” I realised then and felt then the pain that profit is theoretical. Numbers that can be pushed around on pages. Cash is reality. I really didn’t like it or know how I was going to get to grips with it.

How could this be, what was the point? And after hearing the good news, you hear about the tax bill. And again, I’ve seen businesses turn the lights out because they’ve not planned for their VAT bill or the corporation tax bill. The robbing Peter to pay Penny eventually catches up. This is the entrepreneurial poverty that I am talking about.

Working with a finance director (or a virtual finance director) has helped me to understand the numbers and what they mean for the business. They can give you all the figures and it’s how you turn those numbers back into story and what you do with the information that’s important. I decided after a big “tax bill surprise” that nearly put my company under financially that I was going to take control. You can too, and here’s one of the resourceful strategies that you can do today, you can start right now. It’s really easy and it will change your company’s (and your) financial health.

Create envelopes for your business

How badly you want to change living month to month and eating last will determine what action you take. Here goes…

01. Open a bunch of extra business accounts (envelopes)

Maybe your existing bank will let you have several accounts that you can name. I chose to go with a bank where it took less than 10 minutes to set up the account via an app and provides free banking. Starling is great, you can also created “spaces” inside your account to sweep money aside for your different envelopes. (There are banks available such as Tide and Monzo, this is not a recommendation or a plug for any bank in particular, that’s your choice).

02. Label your bank accounts (your envelopes)

VAT. Twice a month set a reminder to check your payments received, don’t even think about it just sweep your 20% aside. You’ll be ready when that VAT bill arrives and when the money is out of sight it’s out of mind and you can’t accidentally spend it on that fancy coffee machine. That’s the risk when you see your healthy bank balance, you don’t realise that 20% of it isn’t even yours.

(This was my catalyst for change by the way, I’m not ashamed to admit it but in my agency days way back after a long Christmas holiday and a lot of things going on personally I had forgotten about VAT. I can still feel that sting and it was nearly the end of me).

At the end of each quarter after VAT returns are submitted, no doubt there will be an excess. You can then push that aside to another envelope for your corporation tax. You know once a year that you’re going have corporation tax to pay… Like Dad says, spending your tax money is not unlike stealing so put that aside every month in anticipation. What’s left over is not a bonus, well it could be. After paying the tax man, whatever is left is yours.

Current account – use your usual bank account for receipts or it is a pain to change banking details for clients. If you want to be extra thorough, create an operating expenses account. I can’t believe how many businesses don’t know exactly how much it costs to keep the doors open every month. Have all opex coming out of one account and then you’ll know. Maybe it can be part of your goal setting to have six months opex in the bank. That way you have a buffer on slow sales months, if that new client doesn’t land, that retainer client cancels their contract, you don’t run into mission state critical. It’s scary that most businesses are only about three months away from bankruptcy. After the pandemic with all these loans, that’s probably optimistic.

03. Open another account for profit.

Why should us as business owners eat last? We are the ones that have sacrificed, the ones who have lost sleep, missed family events and we take all the risk. We should be looked after and rewarded the spoils of business. Instead of asking yourself how much revenue do you want to make, ask yourself how much profit do you want to make. Then look at your bank balance, take that percentage and put it aside. Every month put that profit aside first. Maybe start small until you get into the habit of it, start with 1% if you need to.

For agency businesses and service based businesses, this is difficult. It will force you to look at projects in a new light. Project scope creep, over delivering, not charging for change requests will sting that little bit more and I hope that this practice of deciding what a job’s profit is before you begin will help you to get things streamlined. It’ll certainly give you a sense of urgency to stop bank rolling clients’ projects and put the processes in place.

And I promise you another thing my fellow business owners, if you put it aside and it’s out of sight guess what – you’ll make do with what cash you have. Protect yourself from the “bank balance trap”! Your profits will be protected and when you look at that P&L statement with your FD at the end of the year you will have some cash to back that theoretical number up.

Let’s get off the boom and bust rollercoaster. If you want business growth, you should also want financial health and that means focusing on profit in cash. Don’t think that I’m some money crazed monster drawling over money. Profit is important, profit (and cash) are how you create a sustainable business and stop living hand to mouth. Profit is how you grow. If you’re not fire fighting (or holding restaurants hostage), you can focus on the right things and work ON your business (not in it).

I hope that has sparked some positive thoughts for you and that you’ll take one action away and set up your envelopes. I’d love to hear from you if you have any other genius ways of managing your financial health in your business. My wish for you is entrepreneurial prosperity.

If I can help, you want to talk it through or need some accountability then DM me on social media the word GROWTH or email me hello@workwithsian.co.uk and let’s set up a clarity call.

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