IT’S TIME TO STOP SPENDING

Buy into a franchise and you’ll be raring to go. Just keep a tight hold of those finances...

When you buy a franchise you need to keep a tight hold on your finances.

It’s generally accepted that a franchise has a greater chance of success than a go-it-alone start-up. Just remember that a franchise is still a business and there are no concrete guarantees of success. Your franchisor cannot protect you from all the pitfalls of small business so it’s good to be cautious and frugal.

CASH FLOW

Profitable businesses have come undone by cash flow problems. Don’t assume that just because you are bringing in enough revenue you can relax and start spending. Unpaid invoices, unexpected costs, a sudden downturn in sales or taxes can put a strain on available cash. Cash flow is like air for business; if you don’t have money on hand to pay rent, staff and suppliers your business will suffocate.

DON’T OVERSTOCK

Even if you are tempted by a bulk-purchase discount try to avoid holding onto too much stock. Your cash will be locked up in unsold stock, absorbing all your working capital. Stock requirements are driven by sales so make your decisions based on what your sales are likely to be as opposed to what you would like them to be. Get a clear picture by carefully tracking inventory, you are more likely to overspend if you are flying blind. Retailer Dick Smith had 12 years-worth of batteries in its warehouses when the business went into liquidation.

DON’T BUY WHAT YOU DON’T NEED

There are lots of gimmicks and gadgets out there that appeal to new business owners. Keep your expenses to a minimum, particularly when you are just starting out. If it’s not an absolute necessity, then it’s a “want” and best put on hold. Ad hoc spending is to be avoided at all costs.

KEEP THE BRAKES ON EXPANSION

You’re ambitious and enthusiastic but growth must be sustainable. Your big ideas need to be matched by sound operational execution. Stretch yourself as long as possible, work the long hours, do the hard yards before you start investing in growing your business. Resist the temptation to take on more staff, buy more stock and equipment, take on more debts and rent larger spaces. Regardless of how quickly your business expands you should carefully save and plan for expansion opportunities.

BUDGET, FORECAST, PLAN

The pitfalls of business can easily be overlooked by the aspiring entrepreneur. According to the Australian Bureau of Statistics 60 per cent of small businesses close within the first three years. It’s easy to get caught up in the day-to-day running of your business and forget about long-term planning.

• Create a conservative budget that estimates revenue, costs and fees.

• Micro-planning and a big picture approach are the key to success.

• Monitoring cash flow should be your number one priority. How much cash does your business need to run day-to-day? Expect the unexpected and put plans in place so you aren’t caught short.

• Develop a strong strategy for monitoring inventory.

• Even if it is your least favourite activity you must make book-keeping a priority.

• Run your budget past a trained professional. Choose someone who understands franchise systems. An accountant will be able to offer realistic advice; they are unbiased and don’t have the same emotional attachment to your business.

Buying a franchise gives you a unique opportunity to access financial information before you set up your business. You will have a sound idea of the costs it will take to launch your business, monthly expenses and revenue projections. While a franchise is more likely to succeed it should not be considered a golden ticket. Create your budget, make sure you know it well, stick to it, measure results and forecast for the future; get this right and you’ll be well on your way to sustainable success.