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The Dollars Won’t Look After Themselves

By Michael Finger

Monitoring your finances in the early stages of a new business is something that often gets missed. The dollars initially pour out of the account in an effort to ensure the business gets up and running. Often new business owners, in their exuberance, think it’s only a few small amounts of money but soon enough the multiples add up.

If the business kicks in quickly that’s all ok, if not an overdraught can quickly be depleted.

There is gold at the end of the rainbow for those that work really, really hard. On the journey to success there are growth spurts and often you can hit a wall. With lots of energy, planning and strategising these walls or blockages can be overcome. What can be experienced is high energy followed by flat spots. When business is flying and the market in your favour with the cash coming in, it is really easy to again lose track of the dollars that are flowing out. Often we see business owners in a state of euphoria and money is no object – but the reality is dividends and excessive purchases too early in the growth cycle can sap the business of cash. Warning: watch every cent.

The practise I focused on during the growth of our now large business is: to daily watch the outgoings and each week check how we are looking for the months to follow. Meanwhile I make adjustments to payments and ensure money spent is well focused, continually asking the questions: Do we really need to do it? Do we really need to spend this money? Ensuring at all times there is a buffer of cash for at least 3-4 months in the event of a downturn. You need a good accountant yet have plenty of insight into what’s going on.

In the early stages of our business some 25-30 years ago, my partners and I got to the end of the year review for our financial position, and looked at each other and said “where has the money disappeared to?” We quickly worked out that delving into an overdraft when the markets turned was a very uncomfortable position.

We then employed a very basic approach, which some might say is archaic. What we did was set up an account that we affectionately called a Peasant or Squirrel account.

When things were flying we would hive off a set amount of monthly income that would then be placed in an interest bearing account that is sitting ready for a rainy day.

Occasionally we accumulated sufficient funds to put down a deposit and buy a property that ultimately we would use as a backup asset for downtimes borrowing and at the same time be an effective use our cash.

Over a period of years we accumulated several properties that with a rising market become an amazing anchor for the business and us as individuals. One day during the GFC when the banks were getting really tough we had to get a top up a loan for the business. With some clever shuffling we used one of the properties as collateral to reduce our exposure.

Did we plan this? Not really, it was more good luck than good fortune and as a result of our passion and strong belief in real estate we have created a hedge for such downturns and the specific situation mentioned above.

Nowadays we are extremely sophisticated, in tune with change and relatively bullet proof but never cocky enough to take our eyes off the ball.

So my recommendation is to have a process and a discipline around watching your accounts. My tip is – as good as your financial advisers might be – make sure you understand exactly what is going on, where the money is going to, what your major outgoings might be and generally question everything that could expose you to a bearish market.

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