Businesses succeed for various reasons, but there’s a key principle which cuts across all sectors: You need to Follow the Money.
Why is this important?
Following the money helps you track your cash flow and when you track, you can better manage how much will go out, even if you can’t predict how much is coming in that period.
The truth is a lot of businesses don’t keep even the simplest records and this is a costly oversight. if all you focus on is getting the money in without paying attention to where and how it’s going out you could end up ‘working like an elephant and eating like an ant” as the adage goes. Your pricing could be totally wrong if you don’t know how much it’s really costing you to provide the service/product. You could be carrying much higher costs than you need to if you don’t eyeball your expense line closely.
Following the money also helps you identify your key sources of income. You can easily identify which activities, products and customers are generating the most income for you. This helps you focus on the areas that will drive the growth of your business and also help when making critical decisions on which products/activities to discontinue or customers to ‘sack’.
Keeping track of all money going out and coming in doesn’t have to be complex and there are a lot of free or low-cost tools available to help your business achieve this. But the first place to start before you get an accountant or download an app is to keep a close eye on your bank account statements. Review your statements at least every three months to see if something has crept in that needs to be addressed.
Second, if you’re a small business owner, you need to have a separate dedicated account for your business even if it’s in your name. Where things tend to go upside down is when you’re mixing personal expenses and business expenses in the same account.
Thirdly you need to track your invoices and receipts, especially if you sell on credit. How many of the products that you’ve issued invoices for have actually been paid? Who owes you and how are you planning on getting the money back? Beyond tracking money owed you, having a clear way of tracking your collections and payments demonstrates to potential investors or creditors that you are actually running a viable, sustainable business and you are serious about being around for the long term.
Bottom line is that cash is the lifeblood of any business. Most businesses don’t die because they run out of profit, but they certainly die if they run out of cash. When you follow the money, you know when you are most likely to run ‘empty’ and can plan in advance to bridge that gap. as well as put structures in place to help you grow your business.