Working capital or take everything out?
I’ve seen many a good business fail due to a lack of working capital. Sure there are many factors that affect this but sometimes it just comes down to the owner taking too much out leaving it with no reserves. What I mean here is excessive remuneration – not scraping by paying the mortgage and bills.
Apart from the obvious, what happens is a disproportionate amount of time is devoured managing the lack of liquid funds. Usually there will have been a build up of unpaid taxes (Why HMRC allow this is another subject). Then Peter is robbed to pay Paul.
All of this becomes a massive distraction from running the business. Focus is shifted away from delivery and growth to pouring over spreadsheets of bank balances and cashflow when it’s too late.
When I first started working in an accountancy practice when I was 16 years old I remember a desk calendar that had a tear off page for each day with a comment on each one. “The time to start budgeting is not when you have run out of money.” was one of the wittisms. Brilliant!
Make a budget, including how much you are going to take out, build up reserves, reward yourself when you can without putting pressure on the business and stress on you. Don’t run your business into the ground because you “deserved” that leased Bentley Continental GT for £4,500 per month!