Brydon Davidson - Tax Return Accountant

Myth-busting business ideas – part three

  • To get more cash, you just need to sell more.  TRUE and FALSE!Sometimes, selling more is like pushing the accelerator down on a car that’s hurtling towards a cliff.  The only thing you will achieve is hurting yourself more and faster.  Sometimes the problem of not having enough cash has nothing to do with your level of sales, and everything to do with your costs, or delays in getting your sales banked, or both.

    If you don’t have enough cash to pay everyone (including yourself), you really need to look at why … before you do anything else.  If the problem is really your costs or debtors, selling more won’t work no matter how much you sell.  In fact, the more you sell, the worse it will get.

    To get more cash in your bank, you need to be cash positive – i.e. your business needs to generate enough cash from sales to cover all costs, including loan payments, tax payments, and paying you for your effort.  That means you need to know your costs, so you can work out how much you have to sell to cover your costs (commonly called your breakeven point).

    When working out what your costs are, ask yourself this question “Do you really need everything you spend your money on?”.  Most people spend more when they make more without even realising it.  This is proven by us as a country spending more than we make (which really means there are more people spending more than they make compared to people spending less than they make).  Which one are you?  Do you even know?

    Spending more than you make is never sustainable in the long run.  There is always a debt to pay – whether that’s individually or as a country.  So if you’re spending more than you make, whether that’s in your business or personally, make a choice to stop living beyond your means and start spending less than you earn.  Become cash positive by changing/reducing your spending where it’s not important, and/or by earning more … and find a good accountant who can show you ways to do this in YOUR business and at home.

    Once you are cash positive, don’t believe you can now stop watching your income and costs and start spending your money on the things you want.  I know what it can feel like … you’ve worked hard … you’ve earned that new car … right?  The thing is great cash management comes from keeping an eye on your income and costs continually and adjusting things as needed.

    If you want help becoming cash flow positive, or managing your costs (or finding ways to trim your costs without sacrificing those things your customers value, then contact us to discuss how we can help you earn more than you spend..

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