Dealing with a concertina economy
Taking care of business
It could be argued that small business owners are always dealing with a concertina economy. When you are self-employed, business income is seldom steady, and while we would all like to be more Hero than Zero, the reality is that income often comes in large chunks.
Without control, income vicissitude can see small business owners go from spending up big, to overloading credit whilst waiting for their next payment. Cash flow management can give the small business owner a measure of control, especially now as we are living through the greatest economic contraction of our time.
It can help to get in the habit of taking a basic wage for yourself, and actually paying it to yourself weekly. This way, you know that you can cover basic living expenses. This can be especially important if you have a family relying on you as emotional support, as it is a lot easier to give if you have a roof over your head.
It also helps to know your financial position at any given time, but especially in the lead up to the end of the financial year. When you know your financial position, you can look at advancing or delaying income, obtaining or delaying stock or equipment acquisition, and superannuation contributions to maximise your after-tax position and potentially improve cash flow.
Access to cash flow is paramount in an unsteady, concertina economy. As a small business owner, consider placing any available money in an offset account attached to your home or business loan. This reduces your interest bill, but also allows you to access these funds quickly (and often less expensively).
When business is slow, it can be important to reassess some things about your business. It pays to be aware that business owners are more at risk of legal action than employees, and small business owners often face more damage financially than their larger counterparts. For this reason, it is important to be informed about your insurance options to protect the assets that you do own. When business is slow, it can also be a good time to assess your business advertising. Advertising that hits the mark in a booming economy, does not always make sense when the economy is tight.
A rapidly changing economy emphasizes the need for the small business owner to manage and maximise cash flow and mange business risks to protect not only your business, but also your family wealth.
Sharon Muller is an occasional contributor. Sharon is a small business owner with more than 15 years in business.