How to Remain Financially Viable

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Appster was the darling of the Australian tech start-up scene and the media loved them. 

Both founders were jockeying to be seen as the new Mark Zuckerberug - an entrepreneur done good whose views and opinions need to be listened to and actioned. 

They both had huge social media followings and their LinkedIn videos would receive thousands of comments, likes, shares and adulation from an adoring fan base. 

But then something happened. The veneer of success started to rust.  

As reported in Smart Company early last year, the app-development company has gone through the ringer. What was once valued at nearly $60 million is now defunct. 

The article written by Dominic Powell, makes some startling claims: 

  • Appster reportedly placed an eye-watering 400% margin on its sales, meaning a bill of $160,000 to an Appster client would cost the company just $40,000 in production costs when industry average margin is approx. 25%.
  • While the company was in its dying days, former employees allege one of its founders was rarely seen at Appster, choosing instead to spend his time travelling abroad with his partner and attending lavish blockchain conferences.  
  • According to company documents filed with the corporate regulator, Appster owes a total of $1,066,735 to creditors, with $407,788 of that amount being owed to employees. Of the amount owed to employees, $58,455 is in wages, $151,562 in leave and $197,770 in redundancy payouts. An unknown amount is owed in superannuation. The company also owes $187.089 to the Australian Taxation Office.

As part of Your Ultimate Business Survival Guide, small business owners (even tech giants) need to remain financially viable to last and that stops with you.

How to Remain Financially Viable  

Knowing your figures is your responsibility and not knowing them is your downfall. Like Appster is alleged to have done, splashing the cash without responsibility is a death knell. 

So to remain financially viable, here’s what you’ve got to do. 

Keep your personal and business finances separate

While I’m not suggesting the founders of Appster spent like a drunken sailor on things of a personal nature, many entrepreneurs do. 

In fact, it’s a common story. As soon as the first trickle of money flows into a business account, this type of entrepreneur runs out and buys a Rolex. When more money comes in, they buy suits, holidays and expensive cars. And don’t they love to promote their ‘success’ on social media too. 

The reality is, your business finances are not your personal ones. You need to keep them separate. 

If you’re failing in business and creditors or customers come after you, not having clear parameters around business and personal finances can become murky territory. Setting up your business as a legal entity on its own will mean you’re less likely to have to foot the bill from your personal finances should things go wrong. 

Make smart decisions on what to pay yourself

To my point above, you can either spend (and pay) extravagantly or you can be smart about your salary. 

There’s two schools of thought on this:

  • You pay yourself an absolute pitance  
  • You pay yourself what’s right and fair 

What you do really depends on whether you’re bootstrapping and how much you have in your personal account that you're prepared to survive on. 

I believe small business owners should choose option two and pay themselves a salary befitting of where their business currently is. 

As mentioned in the Smart Company article, this might have been an error in judgement by the Appster founders. If they had enough money to swan around glitzy functions overseas while their customers and staff went begging, maybe their salaries were too high. 

While it’s not an exact science and different circumstances will inform payment, you should always aim to pay yourself 20% above market rate. Anything else, leave it to company dividends and your accountant to help with these bonuses.

Calculate what you need to sell each week, month and year 

This is always one of the first questions I ask when I’m onboarding new clients and most don’t really know the answer. 

This comes back to knowing what your end goal is and working your way back from there. So, if your end goal is to have X amount of revenue by the end of June 2021, you need clear targets in place to get there.  

Here’s an example of how to break it down:

End goal: $300,000 in revenue by June 2021. 

For the purpose of this breakdown, let’s assume there’s one year until June 2021. That means you have 12 months to hit $300,000 in revenue.  

So $300,000 divided by 12 equals $25,000. That means each month, you need to bring in $25,000. 

And going further, you need $6,250 of revenue coming in each week to be on track to achieve your end goal.  

In isolation, a figure of $300,000 can seem too big but if you break it down into actionable chucks you have a formula of how to get there. 

Know your overheads 

Money coming in not reconciled against money going out is a disaster. On the surface $6,250 coming in each week looks impressive but if you have overheads of $4,000+ then it quickly takes the shine off. 

Knowing your overheads is vital in small business and was one reason Appster failed. 

Overheads come in the form of many things, like:

  • Staff salaries 
  • Memberships/subscriptions to networking groups and online programs 
  • IT infrastructure 
  • Office rents 

Really, the list can be endless but you need to know them all and know what they cost you. 

Put in place a similar mechanism to above. Breakdown your overheads into yearly, monthly and weekly expenditure and also reference against revenue for the most accurate financial forecasting. 

Engaging an Accountant 

You’re not in this alone and financial help can easily be found. While you must remain on top of your financials and be answerable to them, it’s best to engage an Accountant to operate this side of the business for you. 

For the most part, your job is to sell and market your product or service and grow your business, not carry every decimal point in an excel spreadsheet hour after hour. That’s for a trusted Accountant to do on your behalf. 

As a rule, make sure you have frequent meetings with them and get them to run you through everything they’ve done and what you need to do for them. 

An Accountant is peace of mind and allows you to focus elsewhere without the headache of updating the books and reviewing and understanding your tax compliance. 

Remaining financially viable is step three of Your Ultimate Business Survival Guide. 

To remain viable you need to separate your personal and business finances, make smart decisions on what to pay yourself, calculate what you need to sell yearly, monthly and weekly, know your overheads and have an Accountant in place.  

Nobody wants to be the next Appster in business and start strong but fail later due to, in part, being financially illiterate. 

As Warren Bufett best sums up, “Cash is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent.”

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