It’s all about monitoring the money

So if you’ve been following the advice from Caroline Noel in previous issues you will have beefed up your business plan and budgeted brilliantly, now the early-years consultant from We Can Do Business shows you how to monitor your money

Why do I need to monitor my finances if it all just works out and I’m always busy?

You would not believe the number of times businesses that I work with give this response when I ask them how they monitor their finances! Although the great majority of business owners I meet do monitor their finances really effectively and are well informed of their position with regard to income and expenditure, there’s still a sizeable number that don't. Here are some of the areas of your business you should be thinking about regardless of how long you have been operating – it’s about good business practice.

Watch the cash – forecast your future, budget for the present

Try to gain a basic understanding of how your business will operate in terms of how the money comes in, and goes out of it. Following on from budgeting for your business (see Home Childcarer Autumn 2017), the next stage is producing your cashflow forecast that will help you to take control of the money situation and, more important, plan for any periods when your income may drop and/or your expenditure increase over the coming year/s. A cashflow forecast is the tool that helps you to estimate what you think will happen and then monitor your business against the reality every week or every month.

If you are a new business, there is no doubt that you are enthusiastic and excited about your ideas and how successful you are going to be. But really thinking about the numbers and how much you anticipate in income and expenditure can be empowering. It will help you to reach your vision, make informed plans and projections and give you peace of mind. There should be few surprises for you if you have done your homework.

Key point: A cash flow forecast will help you to focus on exactly how much money is coming in and going out of your business each month.

Know how much your sales cost you

All businesses incur a cost that enables them to make those vital sales. Every sales transaction has an associated cost attached to it and you will need to understand what this cost is to your business. It is absolutely no use selling your service unless and until you have worked out the cost of that sale. So you will need to take into account the cost of providing the service i.e. the cost of sales plus a proportion of the overhead costs and add on a percentage profit margin and then set your price.

Keeping the cash flowing…

Setting your payment terms allows you to know when you can expect payment from your customers (parents). Usually a business allows them to pay within a pre-arranged number of days after the date of the actual transaction or service has been offered, typically called “net 30 Days” (within 30 days).

It’s your responsibility to ensure that you get paid on time. Customers somehow become conveniently distracted when it comes round to paying you, so it’s very important that you openly and deliberately stress the importance of payment according to the policy you have shared with them when they first come to you. It’s all about setting customer expectations with appropriate emphasis.

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