What do you need your business to deliver this year?

When you started your business, you probably dreamed about flexible hours and highly profitable, stimulating work. You had a clear vision of life as a small business owner.

You may have even documented those dreams in a succinct Business Plan. The plan may have specified how much cash you need from the business, your role, and the hours you’d be working. In other words, what the business was going to deliver to you personally as an owner.

But that was all before the world turned on its head and most plans went out the window.

Whatever you previously dreamed of or planned for must be reconsidered due to the impact of Covid. It’s likely that what you want personally from the business hasn’t changed, but it will probably just take longer than expected to deliver this especially as the taxes we face are likely to increase over time.

You now have the excuse & opportunity to reinvent your business to ensure it fully delivers what you want and need it to now & in the future.

Before you start rewriting your business budget & business plan – you need to work out your magic number. Your magic number is the amount of cash you need to draw from the business in the next 12 months and therefore what you need your business to deliver in the next 12 months to make this possible.

So what is the minimum you need to maintain your essential personal expenditure? What salary & dividends do you need for your next mortgage review?

When you look at your essential expenditure; you need to consider what you need to spend more on and areas you can spend less on. These numbers will vary from person to person and you need to be realistic.

If you can trim what you need personally from the business for the next year ; it will give you the best footing to recover cashflow in the business.

To start the trimming process you need to consider the following:

1. Can you still have the lifestyle you want with less cash strain on the business? A walk with friends, as opposed to a dinner out, is great for your health and easier on your wallet.
2. Are there personal costs that can be avoided? Do you need that second takeaway coffee each day? Consider delaying the purchase of the new car or mobile phone?
3. Can you refinance your personal and/or housing debts to achieve lower interest rates or reduced principal repayments?
4. Can you spend less on holidays or travel in the next 12 months?
5. Can you modify your role in the business to reduce stress or workload?
6. Will these needs be different in the medium term? I.e. can you hunker down for 12-months or until the business’s profitability and cashflow improve?

It is possible you won’t be able or willing to do all of the ideas above but if you can reduce your personal cash needs for 12 months it will reduce the cashflow strain on your business. Once you have created your budget  & have identified the potential savings you can make; it will provide a benchmark against which your actual spending which can be tracked in the future.

Once you have your magic number, the business plan and business budget can then be built around how the business can deliver the level of personal cashflow you need. You can then build 12 month goals and break these down to 90 day actions.

There are no shortcuts here. The discipline of personal budgeting with ongoing monitoring of your expenditure is essential. The good news is that the process is both empowering and enlightening at the same time. You’ll be amazed at where personal savings can be made and will feel much more in control of your business.

Contact us if you need help developing your Business Plan or personal budget.

“You must gain control of your money or the lack of it will forever control you.” – Dave Ramsey

 

Please note: This is not meant to constitute professional advice. It is generic guidance only –please seek specific advice for your circumstances.