A lot of businesses have to put all decisions through a couple of tests
- Would doing this thing be positive for the business? (By which we might mean – are we confident it’s going to generate appreciably more value than its cost?)
- Have we got the cash to do it?
It’s much easier and better if you can eliminate the second one, and just ask:
- Would doing this thing be positive for the business?
How do you eliminate the second one? Well, obviously you can operate an overdraft or whatever, so that more cash is available than would otherwise be the case. But the two healthier ways are:
- Operate your business so that your customers generally pay you before you pay your suppliers/staff/HMRC. Or…
- Avoid draining every penny out of the business in salary/dividends/drawings, and instead build up a pot of money inside it.
The first one is great, but where the business owner doesn’t have any personal financial discipline they’ll still just find themselves perennially short of money in the business.
The second one is really the game changer. If people think more about the interaction between the finances of their business and their own financial needs and desires then they can improve their business – and their life – radically.