Follow these 5 rules and you’ll be on your way to a stress free, cash-flow positive, profitable business.

1.    Keep business and personal separate. I can’t stress this enough. If you’re already combining them then PLEASE begin separating them now by having one bank account for business income / expenses & keeping anything personal out of it. Be strict with this. If I use a business account for a personal expense I literally log in and transfer the money back to the business so it’s a non-event

2.    Don’t offer customers accounts! 80% of people are happy to pay either in advance or immediately (and the other 20% are the people you don’t want to deal with, trust me!). Make it easy by taking credit card (the fees are worth it), eway is my favourite merchant. When you engage a client ensure you’re trading terms are clear by always providing them a basic letter confirming the work, it should be a template with your trading terms, just insert the work details, make this a compulsory part of what you do, don’t quote over the phone or you’ll forget about your trading terms. Obtain their credit card details prior to doing the work and let them know when you’ll be charging them. Australians are 2nd only to Nigeria for being bad payers. Trust me, don’t run accounts!

Australians are 2nd only to Nigeria for being bad payers.

Jeannie Doherty

3.    Pay yourself a weekly wage. Yes that’s right, a real-life pay packet. Either use an accounting system and literally put yourself on the payroll OR do it manually using the ATO tax tables, but literally treat yourself like an employee, issue yourself a payslip and pay tax as you go. If you trade out of a trust you will need to draw money instead of make it a wage but the principal is similar, you’ll just need to pay the estimated tax amount to the ATO yourself (ie: weekly, fortnightly or monthly). Your accountant can help you with this. Why? Well that leads me to point 4

4.    Don’t draw money out of the business, full stop! Say whatttt? Business owners have a nasty habit of running their businesses based around the bank balance. It’s a disease that will kill your business (and possibly you too). You have obligations (the ATO, suppliers, EOY tax just to name a few)! You need to reserve money for them! And the easiest way to do this is leave the left over cash alone! If you want to take money then you’ll need to give yourself either a “bonus” or “pay-rise” and to do this you’ll need to look at your profit and loss and see if there’s any profit left to do so. Again, if you trade out of a trust (like I do) you need to draw money, but the principal is the same. I draw my money when I pay the staff and I make sure there is sufficient profit for me to take what I like to be paid.

Turnover is vanity, profit is sanity but cash is king.

Jeannie Doherty

5.    Lastly, people will tell you “you have to spend money make money” and there is truth in that BUT… first, you have to make money to spend money. Further, there are guidelines to standard expenses as a % of turnover in our industry and you can see some benchmarks. Basically though, avoid spending money until you’ve looked at the profit and loss (and other reports) to ascertain whether you can afford to spend the money. When you’re looking at spending money on marketing you MUST decide on the R.O.I. you want for the $ spent or you’re just burning money. You may want or even need a service for your business but if you can’t afford it, you might need to wait or plan a little better until it fits into the budget. The biggest money wasting I see is on Marketing. See my marketing related articles for help there but also, if you want personal referrals to the best of the best (in terms of marketing) please feel free to call me or email me personally, I’m happy to help fellow SME’s.
As business owners we love making sales, generating turnover. But consider this… Turnover is vanity, profit is sanity but cash is king. Follow these 5 steps to be on the way to survive and thrive.