Finances are the lifeblood of any business. Effectively managing them can help you make the best use of the available resources, fulfill commitments to your stakeholders, gain a competitive advantage, and create financial stability in your business.
Financial management involves planning, organizing, and monitoring your finances, and it can get quite tricky for new business owners. You can either outsource such work to a fractional CFO or use our strategies to manage your business’s cash yourself effectively. Here are some ways a business owner or executive can improve the company’s financial management:
1. Making a Business Plan
A business plan helps you identify your clear business objectives over the upcoming years and the resources required to achieve them. If you make one, you will be able to anticipate the expenses, income and research, and arrange sources through which you will finance your business activity.
2. Access Your Financial Position
Regularly monitoring your financial position is crucial for business growth. Check your bank balance daily, create a record of your sales, and keep count of inventory levels. This will help you evaluate the position of your business and compare it to previous months to monitor growth and progress against pre-set objectives. We recommend creating a statement of financial position each year to keep a check on your business’s value and profitability.
3. Limit Credit Term
Most cash flow problems arise in businesses due to late payments from credit customers. Making your credit term and conditions clear from day one with your customers can help you avoid the problems arising with an extended credit period. It is important that you issue invoices timely to such customers and integrate a computerized credit management system that can automatically keep track of credit sales. We also recommend giving discounts for early payments to increase your cash inflows.
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4. Cover Your Regular Costs
Most cash flow problems arise because of regular costs, like paying for wages. It is essential to monitor these overheads and find the exact figure to help you cover these costs. Keeping those funds aside will ensure that you have the money to cover basic expenses and that cash flow problems do not hinder business operations.
5. Maintain Accounting Records
A solid accounting and record-keeping system is a need for every business as it helps you track expenses and creditors. Maintaining accounting records also makes filing taxes smoother and helps provide data sets to obtain external funding through loans and seed funding for your business.
6. Tax Deadlines
Your business can face financial problems because of fines and interest incurred through late tax payments. Such fines are unnecessary expenses and can be easily avoided. You need to keep track of tax deadlines, and change taxation laws regarding your industry, to avoid lengthy legal processes or unnecessary costs. You should keep accurate records to save a business time and have the documentation ready when filing your taxes.
7. Control Overheads
Your expenses can drain the financial health of your business. You can easily cut down on your overheads by saving energy and using existing equipment more effectively. Monitoring the average costs of utilities in your workplace, including heating, lighting, office equipment, and air conditioning can help you identify the overuse and cut down on some of these costs.
You can eliminate the cost of wages and decrease expenses by introducing automation in your workplace. Automating manual tasks through specialized software can help cut out menial work and reduce the working hours of your existing employees, decreasing the expenses you have to pay as wages.
8. Control Stock
Maintaining an optimum stock level is essential for every business in its financial management journey. If a company has a higher level of stock than needed to be stored in the warehouse, its capital is essentially tied up in the excess inventory. This can lead to damaged inventory if a business deals with perishable items.
Holding excess stock will also increase warehousing costs and ultimately increase your overheads. Taking control of your stock levels can help you avoid these extra costs and free up the capital for other business operations.
Financial problems can make or break a business. Around 82% of small businesses fail due to cash flow problems. To counter such problems, every business should have a set financial department or outsource their financial management to expert CFOs to maintain their financial health and create financial stability in their business.
If you cannot afford to hire a professional, you must keep track of your daily expenses to avoid cash flow shortages, maintain accounting records, and monitor stock control. Staying on top of your tax deadlines and minimizing costs can also help you achieve financial stability for your business in the long run.