Growth is the biggest consumer of cash in any business. And the more aggressively a business grows, the more cash it is going to need. Business owners need to plan for growth and one of the most effective tools to assist in planning for growth is to budget.
A budget gives you insight into what costs may result from the growth being targeted and more importantly, helps you establish whether the growth will be profitable or not. Done properly, a budget will show you where cashflow stress points will arise which enables you to start planning for this and thinking of solutions to get through it.
What to do with your budget?
Preparing the budget is only step one. More importantly you need to look at your numbers monthly and compare your actual trading against the budget. Variances, positive or negative, must be investigated. You need to understand what is driving the variance - is it timing and the cost is still to come, OR are you potentially spending money unnecessarily, OR is the growth costing you more than what you thought it would, OR worst case, is the growth not profitable and you need to change course!
Cashflow and Tax!
Everyone is resistant to paying tax but when you pay tax, in your personal name or in your business, this unlocks credit. This can be credit which you as an individual may need to get for your business - overdraft, credit card, personal loan, bond extension, OR credit directly into the business - overdraft, working capital loan.
A business that pays tax is PROFITABLE and will therefore be able to service its debt commitments so credit providers are more likely to lend it money. You therefore need to find the balance between tax savings versus being able to access credit for growth. Tax issues are often cashflow related - if the cash is available to make the payment, people tend to be less concerned about paying. Once your business is making money, has the cashflow to pay the tax, this will unlock many doors for you - both personally and in your business.
Business growth is a journey which My Finance Partner can guide you through it. Should you need any help with cashflow, budgeting or tax, contact us today! www.mfpartner.co.za info@mfpartner.co.za
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