Be bold and ambitious when you’ve got strong financial foundations
Ways to tell it you've got strong financial foundations:
You're making healthy profits every month - at least 10% net after tax & dividends, ideally 20%
If you lost your biggest customer you'd still be profitable
You've got all of your taxes put away in a separate bank account
You've got at least 3 months buffer cash put away in a separate bank account too
You've got solid financial controls in place
You've got great MONTHLY financial reporting that tells you everything you need to know INCLUDING a full year forecast (quarterly accounts just don’t cut it)
With this level of financial control and stability you’ll be making smart, considered decisions that will make your business even more successful, without putting it at risk, and you’ll know way ahead of time if something is going wrong.
Now the other end of the scale is the Danger Zone.
This is a place where it can take just one unexpected event, one poor month of sales, or one customer not paying you on time to cause some real pain.
And after a year of Covid, it's not surprising that through absolutely no fault of their own, many businesses are now finding themselves in the Danger Zone:
Cash flow is always tight and you spend a lot of time fire-fighting and juggling
Suppliers are often paid late
You're making a loss, or bumping along close to break even
Your VAT bill is always a struggle and cash is tight when the payment is due
You've got VAT and / or corporation tax on a deferred payment plan because you can’t afford to pay it yet
Your business would be in trouble if you lost your best customer, or if your customers don't pay on time
You don't feel in control of your finances
You haven't the right financial information to tell you what's going on
Regardless of the reasons you might find yourself there, you need to be getting the hell out as quickly as possible! You don’t want it to become normal and accept this is how life is now.
Because we want to get back to normal.
We want to be bold and ambitious again.
We just need to make sure we don’t over-cook things and that we’ve got a real focus on building solid financial strength.