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Business Advice

Financial health check: Why you can’t manage your business by your bank account

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It’s the start of the year, and in these early days, it’s natural to take a look at how your business is going financially. The unfortunate thing is that this step is often where SMEs make their biggest mistake. They look straight at their bank account and that’s it. I’m guilty of this too, and in Ravit Insights’s dealings with a wide range of companies, the same holds true for other owners.

We too frequently take the shortcut of looking at how much cash is in the bank to guide key decisions. When running a business it can be very easy to get caught up in the day-to-day operations and looking for shortcuts like this one can land you in trouble.

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’tis the season – so is your business prepared?

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For most Australians December is either a time where your foot is flat to the floor, or you’re winding down and focusing on the next end of year lunch.

Knowing which camp you fit into is vital for all Australian small and medium businesses.

For the gelato store near St Kilda beach in Melbourne a warm summer with more tourists and beach days can make their business profitable for the entire year, even through the dark days of winter. The same goes for the retail stores, which despite declining economic environment, often rely on a very busy Christmas to buoy their annual turnover.

However, for others, like consulting firms or those in financial services, December signals a time to wind down. Often businesses will really slow down over late December and early January, with some taking a much needed break.

Whichever camp, or another, you’re in, it is important to understand how seasonality will affect you.

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Why growth is bad for your bank balance

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Growth is good. But it comes with big challenges.

With the hype in the startup world, growth, in the form of a mythical hockey stick, has become one of the much vaunted and sought after business metrics.

As we frequently see reported globally, the highest growth and highest valued technology startups are rarely profit or cash flow positive – think Uber and WeWork.

What that means for the majority of business owners, is that balancing growth with cash flow or capital needs is one of the key operational challenges.

It’s probably what you’ll lose sleep over (if this is you, take a breath and fill out our growth early warning signs check list).

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Don’t listen to billionaires — they don’t understand your business

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When we started Ravit Insights, we followed advice from billionaires and industry experts by putting ourselves in front of potential clients and this is what it got us: radio silence. The truth is, billionaires and experts don’t have a full understanding of our company, and they don’t have a full view of yours either — despite what they would have you believe on LinkedIn and Instagram.

They got to their high level of success over a long period of time, and they’ve probably forgotten half of what they’ve done to get there.

The mistake we made was taking their words at face value rather than thinking for ourselves. Following their advice, we priced our solution too high, and we didn’t go anywhere. Instead, we needed to educate ourselves and find people who truly understood what we were trying to achieve and at what scale and pace.

We could have had a lot more clients if we had ignored the experts and trusted our gut straight away. This is the advice we wished we had been given two years ago.

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Contact us today at info@ravitinsights.com.au