Poor money management or understanding of cash flow leads to the failure of many businesses. 82% of businesses fail due to money mismanagement. As an entrepreneur, you need to have a solid financial understanding of your business. Financial management is crucial, especially when you experience negative cash flow and losses. Do you want to have better control of your business’ finances? Read on to learn essential money management practices.
Prepare a Business Finance Plan
Accounting, risk management, tax planning, and budgeting are significant factors in managing your business’ finances. So, always analyze financial statements and accounting reports to better understand your business’ performance. This will help you set realistic financial objectives like saving for retirement and investing more funds in your company for new inventory or expansion. You can visit this page for a consultation.
Moreover, preparing ahead and having organized records will also help you avoid stressful tax seasons. It also befits you to keep a close eye on your business expenses. An effective accounting tool will help you draw up useful reports like:
- Balance sheet report: These show liabilities, net equities, and assets
- Profit and loss report: These show your business expenses, income, and profit
- Depreciation reports: These show a breakdown of the value of the assets owned by your business
- Account receivable and accounts payable reports: These show how much money is owed to and by your business
- Cash flows statements: These show the cash flowing in and out of the business
Make sure you review all these regularly with the help of an accountant who acts as a sounding board. Personal and business finances should be separated. You can use a separate bank account and credit card for business-related expenses. This helps track your operation costs and identifies tax write-offs.
Ensure Your Customers Pay on Time
Your business might crumble due to late customer payments. It’s best if you’ll make your credit terms and conditions clear from the outset, and also issue clear and accurate invoices. Plus, using a computerized credit management system can help keep records of customers’ accounts.
Make Purchases on Time
Making purchases on time helps avoid situations of low cash flow. Don’t make unnecessary expenses before paying your bills. Hold on till you’ve enough funds to cater for the new expenses.
Significantly, decrease your tax liability by timing your purchases. You can purchase tax-deductible supplies to help claim them on your tax returns.
Don’t Fear Taking Loans
Understanding your business’ finances helps you find out whether you need a business loan or not. A loan might help fix cash flow issues, provide growth opportunities, and allow you to purchase vital business equipment. You’ll be in a position to get loans with accurate, timely, and organized financial statements. Depending on your lender’s requirements, you might also need:
- A business plan
- Copies of your business permit, articles of organization, and any contracts you’ve with customers or vendors
- Account payable and account receivable statements which show the financial health and credit risks of your business
Improve Inventory Analysis
Inventory analysis is the fundamental building block of your business’s longevity. Keep your supply chain on track by organizing your inventory. This will also help prevent issues like out of stocks, overstock, missed shipments, financial inefficiencies, etc.
Be Ambitious But Stay Realistic
Being ambitious is an essential trait of successful managers and business owners. Such a trait helps you make rational financial decisions depending on the facts. But, you might feel exhilarated, especially after starting a new business. Being self-employed allows you to make any financial decision as you wish. Some of those decisions might be good, and others won’t.
Like other aspects of life, running a business comes through experimentation and occasional mistakes. So take the occasional risk but taking unnecessarily significant risks isn’t advisable.
Evaluate and Identify Supply Chain Risks
Volatility and supply chain disruptions impact the healthcare, restaurants, and retail sectors. Working with your suppliers and closely monitoring demands can help you identify and solve risks to product access. It also ensures that the customers’ experience remains positive and reliable.
Make sure you track existing orders and contracts, adjust your supply chain strategies, and have a backup supplier. It helps keep off disruptions that might salvage your forecasted revenue and sales. Moreover, update your supply chain and business plan and track additional business expenses.
Managing your cash flow and finances shouldn’t be an afterthought. You must understand how numbers drive your business. It will impact you with the knowledge to run your business successfully. Good accounting tools make planning, predicting, and chasing your business’ money easy. Remember to consult with your accountant to help manage your business’ finances properly.
Contributor, S. (2021, May 19). Square Brandvoice: How to manage your business finances. Forbes. Retrieved September 2, 2022, from https://www.forbes.com/sites/square/2020/09/25/how-to-manage-your-business-finances/