We all go into business to make money; whether it’s to get paid for doing something we love, being paid more so we can spend more time with our families, or just to become wealthy, itis all focused around cash.
The problem is that once we’ve built up a business that generates a profit, our natural instinct is to spend it. More often than not, we spend it all.
As the vast majority of business owners do not make budgets or forecast their future spending, all business decisions are make based upon that day’s bank balance. It’s a short sighted and dangerous accounting method; often resulting in bad business decisions and lost opportunities. How often have you withdrawn or spent money that you thought was available, only to find yourself struggling for cash a couple of days or weeks later?
Common scenarios are:
- Having too many business costs so you are unable to take an income from your business.
- Taking too much money from your business as personal income, meaning you struggle to pay your tax bills.
Saving money will never be trendy or fun, but it is vital if you want to run a successful business that isn’t scrambling around for more sales in order to pay it’s way. A profit allocation system ensures that you don’t over spend on expenses, you take a wage and your tax bills are covered.
The System works on the assumption that you currently spend all of the money that is in front of you. So if your business had £10k in the bank, you would happily spend until that £10k was gone. The same logic would apply if you only had £10 in the bank. The difference between these two examples is that you would question all of your expenses if you only had £10. Suddenly the necessity of each purchase would be questioned. Do you really need to buy that piece of equipment, can this upgrade be delayed, we would need to have an understanding of your circumstances. Please contact our helpful team if you want further information.
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