A Healthy Money Mindset

By Nikki Viljoen

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In my experience, small business owners and start-ups are notoriously bad at managing their money –  it’s a kind of “hit and miss” and usually it is more of a miss than a hit!

Most SME’s are obsessed with getting the right product or service to provide to their customers and of course once the sales start happening, they become obsessed with turnover. I’m sure you all have been through this at one time or another and keeping any eye on the turnover is not a bad thing at all.

Here’s the thing though, if the expenses exceed the income or the turnover, it won’t be very long before you find yourself in a world of pain, particularly if part of those expenses are in the form of VAT or Tax that is owed to SARS.

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So keeping that in mind here are a few tips to ensure that you keep a “Healthy Money Mindset.”

1 Always, always, always pay yourself first. Pay yourself a salary. Generally start-ups and small business owners pay themselves last . . . if there is anything left. The mind is a crazy thing, and by doing this you are telling yourself that you have no value, that everything else and everybody else has a greater value than you. Clearly this is not a good idea.

2 If you are a VAT vendor, open an interest bearing account and as your invoices are paid, move the VAT portion into that account. That way you are not tempted to spend the money because it is under your nose all the time. I don’t raise very many invoices during the month, so I normally transfer my VAT as and when an invoice is paid, but if you are in a retail type of environment, you would do the transfer as part of the “end of day” or “Start of day” requirements. (For more advice on how to make VAT work for your business, go to page 50 of the Dec/Jan digital issue of Your Business.)

3 There is a huge difference between the “cost of a product” and the “cost of sale.”
Both are extremely important in calculating the margins that you need to set in order to actually make a profit. That said each are equally important in their own individual right as well, so you need to ensure that you understand them both and then use them appropriately.

Since your main goal is to make a profit, when setting your forecasts for sales and your budgets for expenses, it is far better to set targets for “profits” rather than just turnover as it will help you to ensure that your expenses do not exceed your sales.

Speaking of expenses, there is a rule that is called Parker’s 2nd law that goes something along the lines of “when you income increases, so too do your expenses”. Make sure that you keep a very sharp eye out on the expenses to ensure that they don’t creep out of control while you are not watching. Keeping a tight rein on your expenses will go a long way to ensuring even greater profits.

4 Make sure that your sales teams are meeting their targets. Don’t wait until the end of the quarter or the end of the month to suddenly find that you have a problem.  Break down your forecasts into weekly or better yet, daily targets –  that way you can deal with potential problems before they reach crisis mode.

5 Finally check your bank accounts on a daily basis whether you are expecting any funds or not. No this is not to depress yourself if you are not expecting funds.  The simple reason for this is to ensure that no debits have gone through your account that you do not know anything about. I have many clients who have not been vigilant and unscrupulous individuals have put through debit orders that they didn’t know anything about and this was only noticed several months later.

Making sure that your “numbers” are dealt with and managed on a daily basis goes a long way to either giving you some peace of mind that “all is well” in your world or galvanising you into action when sales drop below the expected or expenses suddenly climb for no reason.

Managing these few tips daily will show that you have your ‘fingers on the pulse’ of your business and that you are managing your business effectively and efficiently.


Nikki Viljoen is an Internal Auditor and Business Administration Specialist who can be contacted on 083 702 8849 or nikki@viljoenconsulting.co.za or www.viljoenconsulting.co.za for any policies and procedures that you may require.

 


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