How do you create financial security in your business

I have realized that despite careful budgeting, cash cushion building and prompt invoicing, your due diligence may not be enough to avoid the squeeze of entrepreneurship. Everything from past-due payments to seasonal slowdowns can result in unexpected cash flow interruptions. Cycles of feast or famine can perpetuate the stress of barely breaking even. To survive and thrive in the midst of this volatility, the adage “expect the unexpected” is a mandate. After all, when your bills are due, it does not matter how many millions of naira are on the way if none of them are in your bank account when it comes time to pay your bills.

 

Here are three ways with cashflow fluctuations: 

• Calculate your make-or-break number – What is the bare minimum, no-frills cost of running your business and your life? Add to that a buffer of 10 percent to get your make-or-break number: a benchmark for the viability of your venture. When you have a clear metric for covering your basic operational costs, it offers a threshold for how much you need to earn as well as a gauge for other spending and reinvestment goals. Subtract your make-or-break number from your previous month’s income to calculate how much you can afford to spend on discretionary expenses.
• Don’t mix business and personal accounts – Set up separate business accounts to keep business income and expenses separate from personal ones. In addition to simplifying accounting, this separation can help cultivate a critical business mindset: Revenue does not equal income!
•  Build a buffer – Expecting the unexpected requires a healthy cash cushion for managing cash flow interruptions. While building this business savings buffer, entrepreneurs should also look ahead for potential business slowdowns and put backup plans in place. Instead of scrambling after a few weeks without sales, proactively seeking new opportunities prior to a breaking point can help avoid overreliance on the emergency business buffer.

 

You might want to read this “how small business owners can improve their financial literacy”

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