Business people are mostly interested in running their business on a day to day basis. They would be least interested in managing unsecured business loans, or filling cash flow gaps, or finding the most suitable software for managing their accounts.
However, whether you like it or not, finance is an aspect of every business undertaking that needs to be tackled professionally. If the funds of your business are not in order, you will never be able to ascertain how much profit you have made over a specified period, or even if you have made a profit at all.
Many businesses have suffered dramatically from ignoring their finances. Some of them even had to go down under because they were not able to find out in time that they had severe cash flow issues. By the time they knew about it, they had lost the initiative and had to close down.
Finance is a matter of survival for any business. It is used when you are filing your annual tax returns, applying for a loan, or carrying out any other activity with another party. Your finances not only allow you to plan years ahead but also enable you to mitigate all financial risks associated with your business.
In the article below, we will discuss a few practical ways to manage your finances correctly.
1. Get Organized
Running a successful business is no piece of cake. It requires persistence, perseverance, efficiency, and organization. Being organized is the key to running a successful business. Otherwise, you will not be able to efficiently manage your day-to-day operations – a necessity for good business governance.
Reviewing your finances and arriving at future revenue projections are vital. Organizing does not merely mean writing down standard operating procedures (SOPs) and then pushing everyone to follow it to the letter. On the contrary, it requires you to become meticulous in all your business activities. You should also make sure that every aspect of the business is handled professionally with a view towards a shared organizational goal.
2. Hire professionals.
No matter how good you are at the core functions of your business, you can never be good at every aspect of the company. There are so many things involved in running a great show that you cannot do without people who are experts in their fields.
Take, for example, marketing. While you may have the expertise to create, develop, and produce a great product, you may not have the marketing skills required to sell that product. Likewise, you need accountants to keep and maintain your books of accounts.
There are so many aspects of your business for which you need professional people. Your team will consist of all these people who will help you run your business. Building a great team helps you in running your business smoothly without hindrance.
3. Forecasting your projected Income and Expenditure.
You may harbor some romantic notions for starting the business. However, sheer romance will not keep it running. It needs to be profitable to sustain itself. The most effective way of arriving at the most realistic projected income and expenditure figures is through the preparation of a budget.
If you want to keep track of your business finance, there is no better way than to prepare a budget. A business owner usually thinks that making a budget eats up their valuable time and offers no tangible benefits in return. This thinking is wrong. Budgeting is one of the most important things that any business owner should do to remain sustainable and profitable.
Another widely held perception about budgets is that they help you to keep track of and to control your business expenditure. This perception is also far away from the truth.
In reality, a budget is a blueprint for your organization’s future fiancés. This blueprint allows you to understand the financial matters of your business comprehensively. It also offers the opportunity to decide even the smallest business-related issues in a well-informed and professional way.
A budget is a tool that allows you to arrive at the projected figures for income and expenditure about any given point in time in the future. This information becomes extremely helpful when you are making plans for your future.
4. Keep Your Cash Flows in Check
Cash flow is the lifeblood of any business. It is the fluid that runs throughout your company, keeps it oiled, and allows it to run smoothly. The importance of cash flow management for a business can never be emphasized enough. It is one of the most effective ways of managing the finances of a business.
Many reasons culminate in cash flow gaps. These gaps can ruin your entire business operation in any given period. Proper cash flow management requires you to keep an eye on these gaps and fill them as soon as they occur.
If you can manage your cash flow properly, it will be a tremendous financial achievement that will ensure profitable continuity of your business operations.
5. Credit Management
If you are running a successful business, it means that you have many clients. All of them will no pay you in cash. As a usual practice, customers would request a credit from one week to three months. The arrangement is like this: you provide your customer with the required goods and raise an invoice against the products supplied.
The customer will keep the invoice and pay the amount within the pre-agreed credit period. If the customer fails to honor his commitment, you will have to come up with a gap that is created because of one overdue repayment. If many customers fail to pay you on time, the cash flow gap continues to widen until it becomes out of control. It is imperative to manage your credit correctly and not allow unpaid invoices to pile up. Make it clear to your customers that they need to make the required payment within the period, or you will not be able to work with them in the future.
The Final Word
There is a tendency among business owners to remain focused on their core business and ignore the finance department completely. It may be because they have no experience in managing the finance of a company. The tips as mentioned earlier not only allow business owners to manage their finances effectively, but they also provide an opportunity to carry out periodic financial analysis of your entity.