Jan 21, 2020
Have you heard the expression “Revenue is vanity, profit is sanity, but cash is king”.
It’s a phrase used a lot in the accounting world and one that holds true almost all of the time. If you don’t manage your cash you will not have a business. “6 figure” sums are always talking about revenue and are amazing but you have no idea if they have 6 figure costs at all or are turning a profit. You also have to run the business you have, not the one you want, to ensure your costs don’t run away with you.
You must also be careful not to manage just your actual bank balance all of the time, as this includes amounts due for tax, payroll, supplier payments. It also does not account for invoices that your customers have not paid you for yet.
Managing your business on a cash basis for day-to-day practical management of your business numbers is a perfectly good way to do things. However, you must always make sure that you have accounted for everything that is due out of the bank before you take any money out. It is worthwhile putting things like tax aside in another account and ensuring that you know what is due to go out at any one time. You should also check your position regularly and know the situation in your bank as to what is coming in and what is going out.
Having separate accounts for your tax et cetera is a really useful thing. I bank with Starling and they allow for something called “spaces”, which is basically having other accounts without having other accounts! It’s definitely worthwhile having a separate account for your tax and any other ongoing longer term commitments.
There is less than one week to go until my five day challenge called “Falling fall in love with your business numbers”. It aims to set you up with good habits for the new year and get you looking at your bank account regularly. We start on Monday, the 27th of January and I would love for you to be there. Click here to join challenge which will take place in my free Facebook group. (link to sign up form – NOT group).