Here's the 11th newsletter in the Business Management series that will take you through aspects of managing (business, financial, jobs, labor) giving you insights and techniques to help you build a better business.

The following content is extracted from Mike Holt's Business Management Skills Workbook.

Debt is a weight that will drag you down and influence your decisions. You will accept work that you don’t want and take unnecessary risks when you have substantial financial commitments with strict payment deadlines that you can’t easily meet. On the other hand, when your business has no debt, you will enjoy a great deal of freedom and flexibility.

Being debt-free:

• Increases your ability to choose your work to fit your team’s talents and experience.
• Allows you to streamline the pricing of your jobs and still maintain profitability.
• Gives you flexibility in scheduling your jobs so you are not dependent on the draw schedule you define in your contracts, and on the final payment for the job.
• Extends your overall purchasing power from your suppliers, enabling you to maintain a steady and sometimes increased workflow.
  

A debt free business has a level of stability and security that a business with debt can never have. If yours is not free from debt, consider making that a high priority—you might have to change some of your standards and business practices to get there.

Budget. Determine your needs and your goals and prepare a realistic financial budget that you will adhere to. We discuss this in another section.

Business versus Personal. Keep a clear separation between personal finances and your company finances. Your business account isn’t your personal piggy bank. As a side note, learn to manage your personal finances first. If you’re not managing your personal finances, how are you going to manage your business?

Debt. If you can’t pay off your debt each month, it means you can’t afford what you just bought. Never get yourself into a situation where you are relying on future work receipts to pay debts from previously completed jobs. This rapidly becomes a perpetual circle that is extremely difficult to recover from.

Lower your spending. You can’t stay in business if what you’re paying out is more than what you’re bringing in. If your bank balance isn’t growing, reconsider where your money is going and make adjustments.

Personal Savings. Your personal savings account should have a minimum balance of one year’s income. What if a tragedy happens? What happens if suddenly, your business goes down? What happens if you’re on a job and that business closes without paying you? Do you have the savings you need so that you can ride it out and aren’t living on the razor’s edge?

Personal Checking. Your personal checking account should maintain a balance equivalent to your outgoing monthly payments.

Record Keeping. Maintain accurate records of all your income and expenditures. This will help you to build “historical data” and show what jobs are costing versus profitability. Analyzing this data will help you to improve your job estimates, protect against repeated losses, and increase profitability. All these things help you achieve and maintain your goal of being debt-free.

Working Capital. Your business account should reflect increasing working capital more than sufficient to meet the demands of your regular payroll, quarterly tax payments, monthly business expenses, and material costs. It’s helpful here to pay yourself a regular salary that meets your personal needs rather than to draw retained earnings from the business account. A regular salary helps to ensure that you live within a personal budget and aren’t tempted to overspend.

Wherever you are in the life of your business, within 15 years you should be debt-free. You must make it a goal. Pick a date, pick a time, and write it down. Draw out a plan and stick to it!

We'd love to hear from you about this series, and the ways you're using it. Send us your comments and feedback by clicking on Post a Comment below. Look out for the next part in this series a month from now, and please share with your colleagues.

This content is extracted from Mike Holt's Business Management Skills book. If you have enjoyed this newsletter, you can get the full content here.