Sara Davies: The five best financial tips I’ve ever received

Whether you’re running a business or the household finances (or both), sometimes you have to admit you don’t know everything. Taking guidance from the people you trust and respect can help you avoid some serious financial mistakes. I’ve always made a point of surrounding myself with great mentors; people who have been there, done that and got the T-shirt, who I can learn from. As much as it can be hard to hear what they have to say sometimes, it’s the only way to grow and develop. But pay attention to those closer to home too. I’ve learned some of the most important lessons in life from my parents, and my husband, an accountant, has been a huge influence too. So here are the five best tips I’ve ever received: Shorts Never spend money you don’t have If there’s anything I need, I save for it. Owning something outright gives you more freedom than buying on credit and having to chase your tail to pay that off. A lot of people assume the only way to start a business is with a loan, but that’s not something I did. It meant I wasn’t beholden to anybody and could make my own decisions without having to answer to the bank. Too many times I’ve seen businesses take a loan or get investment and then squander money because all of a sudden they have more than they know what to do with. Saving up forces you to slow down and be more careful with what you’ve got. There are two exceptions to the rule: your mortgage, because very few people can afford to buy a house outright, and an electric car, because there are some great tax incentives to leasing these. Other than that, if I can’t pay for it, I don’t get it. Understand your numbers Financial literacy is hands down one of the most important skills you can hone in both business and everyday life. It’s not okay to just accept that you don’t know about this stuff. If you understand the numbers, you can make your own informed decisions. If you don’t, you just have to trust what someone else is telling you. This happens regularly on Dragons’ Den, when people parrot off their business numbers: turnover, gross profit, net profit. When we ask: “Why did your margin fall when your turnover went up?”, suddenly they can’t answer. And it’s because they don’t understand their own numbers. Even when I was at university, I had a spreadsheet and budget that I stuck to. I knew when my student loan was coming in and how much I earned at my pub job, and I never ran out. Meanwhile, other people were spending their entire grant within the first two weeks and then having to live off noodles. You have to be able to plan your finances, to know what’s coming in and what’s going out. Don’t outsource it – no excuses. Keep a rainy day fund In business, and in life, you never know what’s around the corner. There might be an economic downturn, you might lose your job, or an event like Covid hits and suddenly everything changes. I was told to always have enough cash to survive three months, and it’s a rule I live by to this day. Having spare cash takes the pressure off, and gives you the time to make the decisions and changes that you need to. Whether you’re making a business plan or financial plan, it makes sense to have three budgets. The main plan is the one you think you’ll achieve; the stretch plan is the dream outcome; and the downside plan is if things go wrong. Plan for the last one and you’ll never be caught out. And that means having enough free cash to ensure you survive it. Get your priorities straight I see so many people in business focus on growing as fast as they can, as quickly as possible, but it’s often not the best way to go. People get fixated on turnover because it’s the big, exciting number when the one you really need to care about is profitability. I experienced this myself. I had a £10m business making £1m profit. But when I grew it to a £30m business, we were still only making £1m profit. So what’s the point? It’s all fur coat and no knickers. It seemed exciting to have a bigger business, but really it just meant more staff and more costs. The key with all of it is to do things sustainably and within your means. You might need to invest to grow, but have a plan and understand why you’re doing it, rather than just chasing the latest shiny thing. Don’t spend money just to look successful In a summer job I had at university, I was working at a company that had these unbelievably beautiful offices. There was a courtyard with a fountain, designer desks, and it painted a massive picture of success. In reality, the business was losing money. You see it in life too, when people are fixated on getting the new car or the big house, but struggle to pay the bills. The problem is, once you’ve got used to those upgrades, it’s hard to row back. Social media can be a problem here, as people paint a certain image of their lifestyle and you might feel pressured to keep up. Remind yourself: just because it looks like someone is living that life, it doesn’t mean that is necessarily the reality. Sometimes you need to ask yourself what’s really important. In our house, for example, we could afford a more extravagant lifestyle than we do, but will it make me any happier? No, it wouldn’t.