13 Ways To Manage Your Business Finances
Financial management is one task that becomes vital as a business expands. That said, it goes beyond cutting costs and maximising saving opportunities. According to financial expert Herbert Edward Dougall, it involves several strategies like planning, raising, controlling, and utilising funds efficiently in business. Entrepreneurs who improve their money management skills can reduce the risk of bankruptcy and help their businesses thrive in the long term. Here are some effective tips to boost your business’s financial management.
1. Make sure customers pay you on time
Businesses can experience severe financial challenges due to clients not making payments on time. Fortunately, you can reduce this risk by making sure customers understand your credit terms and conditions beforehand. Try to issue invoices as early as possible, making sure they are clear and accurate. A computerised credit management system could be a great tool to track customer accounts and get paid on time.
2. Monitor your financial status
Checking your business’s financial position is another proven tip to improve its financial management. It will let you know whether you are losing or winning. Plus, you can make better decisions. A great way to monitor your company’s finances is to know how much money is in the bank account and the level of sales. Consider reviewing your brand’s financial position against the business plan targets on a monthly basis. Cash flow management is crucial for tracking the financial performance of your business, so keep this in mind.
3. Develop a debt management strategy
Interest on debts may drain your finances unnecessarily. The earlier you pay off your debt, the better the financial position of your company. Consider developing a debt management strategy to save more money to settle debts. Early payments will benefit you in the long term, even if that requires cutting corners. Your debt management strategy may involve regularly setting aside a fixed amount of money on a weekly or monthly basis. This will benefit your credit score and ensure it remains good so you can easily access a bigger loan when required. You only have to ensure that inconsistency doesn’t ruin your long-term plans.
4. Analyze your financial statements
Financial statements play vital roles in your company’s financial status. For instance, investors, bank managers, and vendors are likely to request these documents when trying to assess your business’s financial situation. Investors, especially, expect your business to be healthy since they are making contributions to help you run your company. That said, analysing your financial statements will provide you with great insights to keep your stakeholders at ease. Three key areas of financial statements to understand include profits and losses, balance sheet, and statement of cash flow. Profit and loss statements help determine income and expenses. Understanding the major components can give you a clue about what change is necessary to improve profits.
A balance sheet, on the other hand, summarises your business’s assets, liabilities, and equity at a point in time. It’s another useful tool that lets you visualise whether your cash can cover what you owe (bills). Your balance sheet can prompt you to think about other financial options and whether you need extra funding. Finally, the statement of cash flows can show how much money you have made and spent over time. Entrepreneurs should know their cash flow position, as profitability is crucial to business growth.
5. Invest in financial management software
Leveraging good financial management software can save you time. A good example is construction accounting software, which can help contractors eliminate errors and wasteful double entries by integrating directly with their preferred accounting platform. This, in turn, gives you full control and fewer headaches. Therefore, consider integrating various financial management software into your existing tools to manage your finances via a connected system—the benefits of this innovative strategy range from automation to ease of use and effective budgeting. Keep your entire team online simultaneously, update your books, and visualise your finances from any part of the world. Interface your financial management software with your bank to save you from manual transcriptions. A hassle-free accounting platform will empower you to reach your business financial management goals.
6. Don’t stick to a joint account
Have a separate business bank account and a personal one. This is the first principle of corporate finance you should not ignore. Business owners usually want to know whether their company is profitable and cash-positive. Unfortunately, you may be unable to gain that visibility if you mix up personal and business expenditures. Plus, it can further complicate things when it comes to filing taxes – your personal expenditure may not be deductible and will likely require manual sifting out. Therefore, try to create a savings account for keeping your personal money and ensure funds for and from the business go into a different account.
7. Make sure your budget defines your goals
Businesses should always build a budget in place. This can seem challenging, but you can still do it by keeping things simple. A feasible budget can allow you to design a realistic plan for growth. For instance, it can let you understand how many new clients you need to boost revenue by 20% or what expenditure will ensure you can find and serve new consumers. If you plan to prioritise investing in all exciting ideas, proper budgeting can help rationalise what is within your means. It can guide you to set a specific profit figure that summarises your plan to save for a dream adventure, house, or car. Frequently comparing actuals to your budget is a great way to know if you are on track to realise your goals.
8. Ask for help when necessary
Business owners often have a lot to wrap their heads around. However, asking for help is necessary when you run out of ideas to improve your company’s financial management. Conduct research, learn tips and tricks from expert financial advisors, and seek help from your accountant friends when the need arises. A trusted financial professional such as an accountant can offer you peace of mind, update your accounting records, and analyse the financial health of your business.
9. Define purchasing controls
Defining purchasing controls from the outset is essential, especially if your business involves many parties in the start-up. You may want to create authorization limits for purchase orders and allocate some areas of budget responsibility to individuals. Enough purchase controls can prevent issues like overspending and mishaps, such as two customers ordering one product simultaneously.
10. Keep overheads low
Your sales forecasts may be less reliable during a growth phase. It would be best if you don’t commit to fixed overheads on the mere assumption that sales will maintain a high growth rate. Opt for flexible contracts instead, which you can scale back when the need arises. One way to minimise overheads is to use flexible office spaces rather than committing to a long-term office rental. Every saved cash contributes directly to the bottom line. Routine audits of company expenses can help identify inefficiencies or places you can trim costs. However, it’s worth noting that minimising costs doesn’t mean you have to compromise quality – it rather involves finding cost-effective ways to operate. As a tip, foster healthy relationships with suppliers, as it can lead to negotiated rates and bulk discounts.
11. Hire carefully
Saving money doesn’t mean you should recruit workers at low wages. Such a practice can cause you to miss out on great talents, hurting your business growth. Similarly, not hiring the required number of employees can overburden your team, resulting in a high turnover rate. Your best bet to get the most out of your staff is to hire smartly and efficiently. Keep investing in the right resources to train your employees as well – a good workforce is crucial to the efficient operation of any business.
12. Understand your tax obligations
Business owners cannot afford to overlook their tax obligations. Not understanding this can lead to expensive legal complications. You must familiarise yourself with state, local, and national tax codes relevant to your organisation. Know the deductibles available to you and take advantage of them to reduce the financial burden on your business. You can avoid late payments and their financial consequences by marking tax deadlines boldly on your calendar. A cluttered financial system can create issues like missed payments, chaotic tax seasons, and lost invoices. So, stay organised and up-to-date with your financial obligations.
13. Identify regular expenses
Managing your business finances can be challenging if you don’t track regular expenses. It would help if you calculate your average utility bills, employees, wages, office supplies expenses, and the number of active subscriptions you have. Identifying abnormal patterns in your spending is easy if you know such costs. For example, your energy bills may be rising because an employee may be leaving their equipment on. Determining regular expenses lets you know how much financial resources you have to re-invest into the business to achieve your goals. One way to simplify tracking all regular expenses is to leverage the right software, so feel free to consider this.