How to Remain Financially Viable

How to Remain Financially Viable

Whatever happened to Appster? Their sad tale has every element of a fairy story, only it really happened, and not so long ago.

We have two heroes, Josiah Humphrey and Mark McDonald, who in 2011 magically rose to the top of the business growth table.

Their ambition seemed so pure they were labelled as the next Apple. 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 the darling of the Australian tech start-up scene faulted, stumbled and failed.

The duo had created a company that developed savvy mobile apps and websites for enterprises, startups and public figures. Everyone needed apps and they were the kings who delivered. It all came to a violent halt late in 2018 under allegations of misuse of company funds and continuing to operate while insolvent which triggered federal government investigations. What was once valued at nearly $60 million is now defunct.

How does it happen that the veneer of absolute success rusts off?

Amidst the chaos of breakdown came some crushing accusations:

  • Appster allegedly placed an eye-watering 400% margin on its sales. A bill of $160,000 to a client would cost the company just $40,000 in production costs – to put that into perspective, the industry average margin is around 25%.
  • Former employees allege that in the company’s dying days, one founder 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 including almost $60,000 in wages, $150,000 in leave and close to $200,000 in redundancy payouts. An unknown amount is owed in superannuation. The company also owes $187,000 to the Australian Taxation Office.

You might say easy come, easy go but in all honesty, all business is hard work, even a sure thing. Dropping the ball because the money comes easy or things look unstoppable is going to have you slamming into a solid brick wall. No matter where you are or what you are achieving in your level of business, the next step up is waiting, and the only way to get there is through changes that lead to growth.

As part of Your Ultimate Business Survival Guide, small business owners (yes, even tech giants) need to remain financially viable to last, and that stops with the person or people at the helm.

How to Remain Financially Viable

Knowing your financial position and business strengths and weaknesses is your responsibility. Not knowing them is your downfall. In order to remain financially viable, here’s what you’ve got to do.

1. Keep your personal and business finances separate

If your spending, savings and income accounts are mixed, it becomes all too easy to treat your bank account like a cash cow. It’s a mistake that many entrepreneurs make and the result is that you forget to pay back into your business and the people who make it run efficiently.

While I’m not suggesting you cut out your pay, you do need to set up different bank accounts and treat them separately and with very different mindsets. By all means, pay yourself along with your team, and also set money aside for your superannuation and investments, but this needs to be done on a percentage basis (let’s say 10- 20% of your business earnings), rather than dipping into your accounts whenever you feel like it.

As well as having a better handle on your financial standings and responsibilities, you’ll also respect your money and customer purchases more, because it comes with an earned dollar value.

At the same time registering your business as a legal entity gives you and others clear parameters around where your business money stops, so that if you end up in a tailspin, creditors can only take from your business to cover your repayments, not dip into your personal funds, property or equity to reclaim what was lost.

2. 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 are two schools of thought on this:

  • You pay yourself an absolute pittance
  • 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.

The trick is finding the balance between scraping by and extravagant – which the Appster founders failed to do. Make sure you leave your ego at home, it has no place in business. You might feel like showing everyone how successful your business is by rolling up in a Ferrari with a Rolex and snakeskin boots, but your business success has nothing to do with how much you spend or how quickly you can make your bank account balance disappear. It’s about how much you make, reinvest and grow.

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

I’m always talking about having a solid business goal and that’s for a big reason: they work.

Unfortunately, most business owners have no idea how much they need to move to make ends meet, let alone turn a healthy profit.

When I’m consulting with a new business client I always ask, “How much do you need to sell each week, each month and each year to make your business work?” Most don’t know the answer.

In order for your business to make money, it needs to sell a product or service of some kind. In order to meet your goals (whatever they may be) you need to know how much each unit is worth and how much of what needs to sell when to meet your targets.

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 the next financial year, 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 EOFY – June 30 (let’s assume it’s currently July 01)

You have 12 months to hit $300,000 in revenue.

Monthly sales: $300,000 divided by 12 = $25,000.

Weekly sales: $25,000 divided by 4 = $6,250

Now, most clients baulk at this kind of breakdown because, as any business owner knows, revenue fluctuates. Some weeks might do better than this target and some might fall short. The thought of missing weekly targets can feel like a failure so many business owners prefer just to make “as much as possible” and hope for the best.

Yes, it is uncomfortable to put a dollar amount on your short-term sales, but believe me, your mindset will change and get geared towards finding those little extra pockets that make up the numbers so that you hit (and often exceed) your overall target because you care about those smaller numbers.

4. Know your overheads

Balancing the sheet is tedious. Most business owners avoid admin of any kind but tedious admin most of all. Documenting every dollar in and reconciling against money going out is a pain but not doing it is disastrous. There are all sorts of money leaks and bad habits running riot when you don’t know your overheads and account for costs.

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.

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 extensive but you need to know them all the same.

Put in place a similar mechanism to the point above; break down your overheads into yearly, monthly and weekly expenditures and also reference against revenue for the most accurate financial forecasting.

If you really can’t stand to do it yourself, get an accountant to do it for you. Just make sure they are able to break it down in a way you can easily understand and they agree to keep you in the loop – it stays your responsibility even if you pass it off to someone else. YOU need to be the one who knows your overheads and how that compares to income.

5. Engage a credible business coach

If you are struggling to care about your finances you might need the right motivation. Everyone is motivated (and held back by) different values and incentives. A business coach with a background in owning and running their own business will be able to help you discover what will make your business financially viable for you as well as how to put daily actions in place that mean you love working towards your goals.

In our coaching business, remaining financially viable is step three in Your Ultimate Business Survival Guide.

Remember to separate your personal and business finances. The way this works is to pay yourself the right amount so you get a full income and leave money in the bank to invest in your business growth and the changes to come. While it might not be your favourite business aspect, it’s important that you have strong goals around your finances and know how much you need to sell in order to not just make ends meet, but to excel. Keeping track of your overheads and comparing them to your income can also help you adjust and stay on track, before a situation gets out of control.

Look to professionals for advice and guidance like an account and business coach but always keep in mind that the responsibility for your business to find success, stability and growth rests on your shoulders as the business owner.

In business, everyone wants to be the next Apple and no one wants to be the next Appster in business, however, the line between them is faint and often parallel. Make sure you know what direction your business is headed early, and seek help from a trusted business coach to pull it back in line as quickly as possible if you don’t have solid business goals and habits firmly in place.