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Finance‚ Legal & Tech
Why cash is Queen
I don’t think there’s any other feeling, when it comes to business, that comes close to running out of money. How do I know this? Well, I have frequented the pits of an empty wallet far too many times for my liking. Panic sets in slowly, but surely, as the reality of not being able to pay your bills, your staff and yourself becomes a reality.
The shame that descends is just awful, because surely a ‘proper’ business person doesn’t let these sorts of things happen, but here you are, wondering how you’ll ever survive. Let me tell you about a couple of times it’s happened to me and what I did to get out of the stickiest of situations.
When we started notonthehighstreet we had very little money to put into the business, but we had some. Through our parents, a small bank loan, some savings and a bit of money from a court case Frank had won, we scraped together the start-up fund for our new venture. We felt quite smug to be honest, as we’d even allocated a well planned contingency fund and so we felt prepared as we set off. Fast forward, ummmm 6 months, and we became slightly, how should I say this – less cock sure of ourselves! We’d totally run out of money. The business had started to work and yet we found ourselves in floods of tears, in the corridors of our rented office space. It was serious, we were not paying ourselves a penny, the house was at risk, the staff were being paid by writing cheques from our credit cards and it was spiralling out of control.
‘What do they say ‘revenue is vanity, profit is sanity, but cash is king!’ Or in our case queen!’
But, like you, there was no way a small thing like running out of silly money was going to stop the vision and quite frankly the societal need of notonthehighstreet! So we rolled up our sleeves, spoke to every human we knew and somehow found ourselves in front of city investors. I will write again about this whole experience, as it wasn’t pleasant, but there we were, pitching for our very survival. After the most agonising first business Christmas, selling our wares to the public and ourselves to an interested financial party the pain finally stopped. On February the 14th 2007 we had a money transfer from one of the best investors, who is still a friend today. With our new funds we were able to take the next steps, get stronger and live to see another day. We ran out of money twice more, but as I said, that’s another story.
Then more recently, building Holly & Co, this time I was the investor. I decided to do it all again but I wanted to learn from the mistakes of the past, and back my new business. But this was easier said than done thanks to being the main breadwinner of the household and with a limited amount of savings. It was a risky move and all I can say, is that there’ve been many long walks, where tears were my only company. Over the five years, we’ve come close to not being able to continue three times, thanks to all my savings running out and the company growing faster than we could afford. I risked it all, the whole lot on Holly & Co and thank god, we’re out of the woods – just. Business loans, savings and every last penny – all called upon.
When I wrote my book ‘Do What You Love, Love What You Do’ I likened money as the blood in a business body, totally essential to survival and yet, we can mistake growth and sales as the same thing. We can build sales graphs which go in the right direction and can easily be found giving ourselves a pat on the back for big deals and yet we do not seem to pay our cash health the same attention. Planning when bills need to be paid, when invoices will be settled and actually the closing cash balance each month seems to not be filled with the same ‘highs’ and yet it actually should be what we pay most attention to. Believe me, as I’ve not only the t-shirt, but the badge, cap and keyring, for when you don’t!
What do they say ‘revenue is vanity, profit is sanity, but cash is king!’ Or in our case, queen!
‘Plan your cash, religiously. Make friends with a spreadsheet and plan the timings of the larger outgoings and incomings. See where you will have hard months and plan ahead of time, about how you will get through those sticky situations.’
So what have I learnt?
- Negotiate all, and I mean all, payment terms. Did you know, in a recent survey, when asked, 8 out of 10 founders who started a business and failed within the first 18 months of trading listed ‘cash flow’ as the number one reason for business failure.
- Make friends and not contacts. You won’t believe how much it can help you if you’re able to explain your situation with your suppliers, or manufacturers. What they’re able to do for you, in times of need, literally can save your business.
- Try and aim to have 3 months of survival money, tucked away in a higher interest account, just in case.
- Plan your cash, religiously. Make friends with a spreadsheet and plan the timings of the larger outgoings and incomings. See where you will have hard months and plan ahead of time, about how you will get through those sticky situations.
- Get an overdraft to give yourself some flexibility.
- Don’t be a financial ostrich! Burying your head in the sand won’t make it go away. So today I want you to do at least one of the things I’ve talked about. That’s your challenge! In fact, send me a message on Instagram to let me know you’ve done it, nothing like a little accountability to spur you on.
The power of knowing your finances
We can't promise it will stop you from running out of money, in fact it likely won't, but knowing when you're getting to the bottom of the purse is far better than it being a surprise! Emilie Bellet, founder of Vestpod - a digital platform which aims to empower women financially.