Business Blog 4 October 2023: Building Successful Business Habits
- Brad de Waal
- Oct 3, 2023
- 2 min read
Most people believe it is a drop in sales and turnover that results in most businesses closing down. In actual fact, it is lack of cash-flow that results in most closures.
When faced with a drop in sales you only have four courses of action:
Use pro-active intervention to grow your turnover. Relaunch your business, recruit more income generators, introduce new income streams by adding more services, grow your retail offering, even increase your prices. Every new strategy you launch will have an impact on turnover.
Take out a loan to see you through better times when your turnover will magically grow and take care of all your money problems.
Take control of your cash-flow. Regardless of your turnover, you only need a certain amount of money to run your business and, as long as you can cover those costs, as and when they are due, you will survive while you action the strategies mention in point 1.
Lastly, you can always throw in the towel and close down.
For me, only points 1 and 3 are viable options. Today I want to deal with point 3.
Control your cash-flow.
Let's be very clear, turnover is not profit but it does generate cash-flow. There is however a break-even point when your turnover starts contributing to your profit.
Once you total up all your fixed costs such as rent, fixed salaries, telephone, electricity, water, (in other words your operating costs), including an estimation of commissions, etc, you will know approximately how much it costs you to run your business, i.e. your break-even point. All turnover thereafter goes towards your gross profit.
Bearing that in mind, the skill is to protect the money in the bank (basically your turnover) and not spend money unnecessarily, until you have reached that break-even point.
Imagine having two bank accounts:
The first bank account contains 'un-spendable money', that is only spent to pay unavoidable expenses such as rent, Bargaining Council, SARS etc. Thereafter that bank account is used in anticipation of expected salaries.
The second bank account is only used once you have met your liabilities. Some people already do this with regard to SARS, i.e. bank the VAT portion of your turnover in the protected bank account.
This will require a lot of discipline until it becomes a business habit but once it is, you will be surprised how much more disposable money you will have.
Just don’t forget point 1.
– Terry Miles, MD MySalon Software
Email: info@mysalonsoftware.co.za
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