Unless you are an independent financial advisor who has set up his or her own small business, you haven’t gone into the field of business ownership as a financial expert. In fact, the vast majority of small business owners are far from financially wise, and very often the opposite is true. But whether your business is making surfboards, grooming pets or teaching yoga, there will be financial considerations that will form a core part of running your business successfully.
Down the years there have been countless examples of business and individuals who ended up filing for bankruptcy despite long and profitable periods of success, simply because they didn’t manage their finances properly. It is an integral part of running any business, and something you must consider even before you commence trading. And whether your turnover is $10,000 or $10m, the principle is still the same. Start off on the right foot, and managing your finances need not be the headache you envisage it to be. Even if you are some way into your journey and you realize that things need to improve in terms of how you manage your finances, it’s not too late. Here are five essential tips for effectively managing your business finances.
This is not just one of those obligatory administrative activities that adds no value to your business: a proper financial plan is a fundamental aspect of everything that you will do, from the investments you make, to the targets that you must set in order to break even and then start profiting. If you have never made a financial plan before (and many people haven’t), fear not, because not only is it not as daunting as it sounds, but you can also engage plenty of help to get this done.
Making a financial plan should never be a cursory activity – it is not something that you do because you have to and then never thing about it again. It should be a living a breathing document that you refer to and measure against regularly in order to truly understand the health of your business.
Accounting software is beneficial for a number of reasons, but mainly because it will save you valuable time, help avoid against errors, and even help you to grow your financial management knowledge.
There are programs and apps which allow you to make everyday financial filings, meaning you eradicate that manual elements of processing accounts. Another advantage here is that, come year end, if you engage a financial expert to conclude all your accounts, the software will integrate seamlessly with the accountants, or else will provide the necessary reports containing the information needed. Detailed, and error-free reports too.
Managing your business’ finances is a daily activity, not something you ignore until year end rolls around. It’s about forming good habits, such as checking up regularly on cashflow, keeping a firm eye on what is in the business account at any moment, and ensuring payments are made in a timely fashion. In this way, issues can be spotted early, and you can make smarter business decisions with this kind of up-to-date information.
Start early in this activity so it does become a habit, especially in terms of managing your cash flow situation. Timing can be everything in terms of managing your finances, and be a vigilant as you can in terms of demanding payments as well as making them.
It’s possible that you have business loans. It’s possible that you have outstanding supplier invoices. You definitely have tax responsibilities. In all of these situations, it’s really important that you meet your deadlines as frequently as you possibly can. Not only are these business obligations, but they should be in-built into your financial plan and then should reflect the true financial health of your business.
If you are having issues with any of your repayments, speak immediately to a professional about reorganising payments and the frequency and amount that you have to pay in order to free up your cash flow. Without a healthy cash flow situation, it is impossible to grow the business, and from there things cannot improve.
In terms of tax payments, you can save yourself some hefty fines by making sure everything is paid timely. Taxes must be paid, and delaying them does your business no good whatsoever, and tax authorities do employ stringent penalties in terms of late payments, so always keep track of how much is to be paid and when.
And in terms of loans, you don’t want you credit rating affected by making late repayments in case you need to borrow again in the future (which you will hope to do as things begin to scale up). No business can grow under the strain of late payments, and it doesn’t bode well for the future of your business if this becomes a regular issue.
Most of those individuals and businesses who have got themselves into deep financial trouble share a common mistake in their activities: they ignored serious warning signs when they first arose. Hardly any business will fail overnight as a result of some epic Wall Street Crash-style event. Most of the time it is a slow, ponderous death that can be predicted a long time in advance.
Financial difficulties are not an easy thing to consider or deal with, and can cause sleepless nights and a great deal of stress, especially if you are the owner of a business that is responsible for the livelihood of others. That is a great burden to bear, but the first thing to understand is that you never need bear that burden alone. Do not be too proud or too embarrassed to ever ask for help: that is a dreadful mistake to make and, in most cases, will result in the failure of your business.
That is because interventions can be made to assist with any number of financial issues that may be facing your company, and there are a number of organizations that exist to do just that: help.
Engage an independent financial advisor, some of whom may even work on the basis of payment if and when company finances turn around, to seek the advice that you need. As mentioned previously, you are probably far from an expert in these matters, and there may be solutions out there that you haven’t even considered or just plain didn’t know about.
But a vital point here is that early intervention will quite probably prevent things from getting a whole lot worse. Often a simple rearrangement of your operations can improve cashflow scenarios, and there are ways that you can structure debts so that they do not interfere with the day-to-day running of your business. But once again, you need the right advice here to ensure you are making the right decisions.
Burying your head in the sand never works. Never. These things do not go away by themselves, so you must tackle them head on as early as you can before any financial wounds fester and eventually become inoperable.
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