Strategies to make managing business finances less overwhelming
Ask a successful entrepreneur about success, and they'll most likely say that it requires a mix of dedication, drive, and passion. But the truth is that building and maintaining a thriving business also implies bookkeeping, budgeting, and financial management concepts.
When running a business, your goal is to protect your investment, and the best way to do it is to pay careful attention to financial details. Efficient financial practises promote revenue and protect your business and employees from legal and compliance problems. These habits can also provide you with financial safety during challenging situations like a pandemic.
Understanding what business finance implies enables you to secure your business' future as knowledge offers a foundation for a business that strives to expand and grow.
Financial management is crucial for your business's bottom line
For a business that plans expansion, it's vital to keep a close eye on expenses, cash flow, and revenue to boost growth, earnings, and recruitment. For non-profit organisations, it's critical to overseeing donations and income sources in the event of an inquiry or audit. If you fail to understand what basic financial measures you must adopt, you may experience daunting consequences.
Financial management is approachable these days because technology provides the necessary tools to handle it. Here are some strategies you should apply to secure your company's long-term financial success.
Establish a workable budget
The budget accounts for all money that comes in and out of your company. To create a budget, you need to make a list of expected sales, income, interest in investment, and other similar expenses. You can gather income information from financial statements.
Try to predict what expenses your company experiences regularly. They can include utilities, payroll, inventory purchases, fees, insurance coverage, and payment of debts. The expenses list should include essential details about operating expenses, corporate fixed costs, and variable costs.
Establishing a budget changes how you manage your company and enables you to achieve your goals because it allows you to forecast revenue and identify unnecessary expenses.
The workable budget can serve as a tool to determine if expenses are as per plan.
Learn bookkeeping techniques
Bookkeeping allows you to track all financial transactions your company operates over a period. You can try to bookkeep the old-fashioned way or use software like QuickBooks that provides premium features. Accounting software saves you plenty of time because it tracks finances automatically and gathers all financial information in one place.
You can also outsource this task to a trained bookkeeper or work with a freelancer to check your financial record periodically. An accounting tool is useful even when you have an accountant because it provides a real-time overview of your finances and helps you understand where your company stands.
Understand cash flow
Understanding how your business spends money is crucial for financial management because it provides proper information to make decisions. Studies show that 82% of bankrupt companies identify cash flow issues as the culprit. During the pandemic, companies found it even more challenging to track their cash flow and make decisions based on accurate information.
You should carefully analyse your cash flow statements because they offer details about the amount of cash your company spends over a period of time, and for what purpose. Keeping track of your company's finances prevents overspending, unnecessary loss of liquid assets, and overdrafts. You can use accounting software to create cash flow worksheets and keep an eye on expenses.
Optimise your company's payroll process
After creating a steady cash flow, look for ways to streamline the payroll process because it impacts your business' financial health. Using reliable payroll software guarantees that salaries are directly deposited into your staff's bank accounts and make room for no error.
Direct deposits make it easier to manage cash flow because it cuts down the chance of several employees depositing the checks at different times, disrupting your cash flow. When you automate salary payment, you also prevent yourself from accessing the funds allocated for paying your staff.
Create a profit and loss statement
You need a profit and loss statement to get a clear view of your company's overall profit, revenue, and losses, over a determined period. It's recommended to create every three, six, and twelve months to track your company's evolution. The statement is also useful if you need to obtain working capital or get a business loan. You can also use it to attract shareholders or investors because it offers a full financial picture of your business. But for the profit and loss statement to serve its purpose, you need to update it regularly, so you can provide accurate financial information when required. Some accounting tools provide workable templates you can use to put together a profit and loss statement.
Keep your personal and business finances separate
Mixing personal and business finances is the perfect recipe for disaster because it can create only disorganised records. It's nearly impossible to keep track of the funds you receive and spend monthly when you use the money to cover personal expenses. On the other hand, you cannot accurately tell if your business is profitable when you use personal funds for business expenses.
Therefore, it's crucial to make a clear separation between personal and business finances so you can claim tax deductions for business-related expenses. Create two separate bank accounts for each purpose and always use the right one when paying bills.
Improve inventory analysis
Inventory management is paramount for a business' longevity. You can keep your supply chain on the right track only if you properly organise the inventory. Failing to put the inventory in place can trigger problems such as financial inefficiencies, out of stocks, mis-shipments, or overstocks.
For example, if your website fails to inform the client they can find a product in a land-based store when it's out of stock online, your business loses a sale. Using inventory software can prevent this issue and help you move inventory when you change collections between seasons.
Do you know other strategies to help entrepreneurs feel less overwhelmed when managing business finances?