Cash is THE most important thing in your business, now and forever. And getting into good cashflow habits early will help to make sure your business survives and gives you the lifestyle you’re looking for.
As an IFA you’re used to helping your clients manage their money, but it’s very different when you’re starting out on your own. Especially if it’s the first time you have run your own business and when there are so many other calls on your time.
As a new business you need to make sure you’ve got enough cash to last until you get into profit. This always takes longer than you think, and your costs will always be more than you expect them to be.
Without cash you simply have no business. Lack of cashflow is the key reason for business failure, which is possible even in the IFA sector. Without cash you simply can’t carry on trading.
So here are my top tips to stop that happening.
Tip #1: Get the facts
You need a detailed cashflow forecast showing the next 12 months. Set up a simple spreadsheet with your income and all of your expenses shown clearly and update it each month. This will tell you what your cash balance is and equally as importantly, where it’s heading.
Tip #2: Be realistic, even pessimistic about your cashflow
If you’re setting up your own business then you’re probably optimistic, ambitious and driven. Whilst these are essential qualities in any successful businessperson , when you’re looking at cashflow you need to force yourself to be a little more gloomy. Cash never comes in when we think it will; it might take longer than anticipated to transfer existing clients to your new business, providers inevitably will make errors and finding new clients might be harder than anticipated. Furthermore, your expenditure will always be more than you thought.
Tip #3: Factor in delays
Be very aware of how long it will take to get paid for a piece of client work. Delays naturally occur, providers make mistakes and clients don’t always pay as quickly as we would like. Be conservative in your estimate, if in doubt put it back another month in your cashflow and make sure you can still survive.
Tip #4: Safety first
Success in business isn’t about how much we make, but how much we keep, so don’t be tempted to pull out all your cash when you start making it. Build up a cash buffer so that when you have a couple of quiet months you won’t be plunged into cashflow difficulties. One of the main reasons businesses fail is that the owners just take too much out too soon.
Tip #5: Keep a tight rein on the purse-strings
In reality you don’t need to shell that much out in the early days. Unless you have really deep pockets, put off any expenditure that isn’t completely essential. Don’t get dazzled by a new ‘toys’ and ‘nice to haves’ when you don’t need them.
Tip #6: Tax
When you start making profit you’ll need to put your tax aside every month into a separate account that you don’t touch. Not being able to pay your tax bill will cause a lot of financial stress. Get it clear in your mind that this isn’t your cash and you should never use it in your business.
Tip #7: Keep looking ahead
It’s a tricky balancing act when you have your own business as you inevitably feel you should spend all of your time with clients, after all they bring in the fees. But there will be other calls on your time like admin and marketing. You need to keep looking at your cashflow and make sure you can see where the future months’ revenue is coming from, so make sure you spend enough time each week on marketing and feeding the pipeline. It’s very easy to go from being busy with clients one month to no appointments the next.
Tip #8: Claw-backs
Having written a piece of protection business the last thing you want is to have to pay back the money you worked for. Of course you will do whatever you can to stop claw-backs, but also it’s worth putting a contingency in your cashflow for the inevitable. When you find out there may be a problem, put it in the cashflow as a provision anyway.
When it comes to cashflow we always want the surprises to be happy ones, not ones that make your heart stop. So plan ahead, be pessimistic in your assumptions, keep the work flowing in and you should make sure that whatever other challenges you face in your new business, not having enough money won’t be one of them.