Watch Your Fixed Costs
As a business owner cashflow or more accurately, lack of it can kill your business even if on paper you’re profitable.
Variable costs are those that vary in line with the production of your product or service, so for instance this could be the ingredients you use for the sandwiches you sell.
Fixed costs don’t vary in line with production, with the exception that you may need to take on extra staff when you reach a certain demand. It includes everything from your premises to the internet connection, staff wages and pension to insurances needed to run the business.
The thing is the more of these you take on, the more stressed you will find yourself when face with a sudden downturn in business such as during the recent pandemic. Sure you can put off bills with agreement of your creditors or look to renegotiate terms but ultimately if you’re overcommitted you’re running a bigger risk.
Many businesses that grow too quickly, or take on staff because of poor processes, or aren’t careful for all of those subscriptions they sign up to often find themselves in this situation.
I found myself in this situation when I was running that parcel business, or more accurately when it was running me. It would keep me up at night sweating that I would not make the wage bill that month.
If you’re finding yourself having to dig into personal savings to cover these costs, or worse still bashing the interest free credit card period, don’t ignore these warning signs. Time to cut those costs and be brutal with things you don’t need and unfortunately that may include people you are responsible for.