I have been running my own small consultancy business for the past 17 years and it has certainly not been all plain sailing.
In the early days, I got a bit carried away when I saw my bank account growing with what seemed like a nice flow of income (certainly more than in my days of being employed by somebody else!). As good as it seemed, it didn't measure up well against my spending patterns. It was only after a few months that I realised my cash flow was weak and debts were starting to pile up. I had to kick myself as, in a previous life, I'd worked in the risk management space. I clearly wasn't practicing what I once preached, namely to control your business within a sphere of both current and projected business trends'.
I needed a plan. Nothing complex, just a simple budget that plotted what my expected income would look like over the next 12 months, particularly highlighting those months where the jobs are likely to be limited, such as over the Christmas period. Once I'd done that, I needed to look at my expenses on a month by month basis. There would be the regular things like rent, utilities, phones and certain consumables. Then there would be the items that might hit you just once or twice a year such as vehicle registration and maintenance, bulk supplies of materials etc. Finally I had to preserve monies for GST and other tax liabilities. I found that a simple budget gave me:
- A disciplined framework in which to manage my business
- A 'helicopter view' as to both its present and future viability
- A better understanding of where my priorities should be, the opportunities available and even jobs that I should try and avoid!'
My experience is not unusual and I thoroughly recommend that, if small businesses are not working with a proper budget, they should do so immediately!
There are many suggested approaches available and a good starting point is by applying some of the tools on offer by the Dept. of Industry.