Are you struggling to manage your business finances? You are certainly not alone. According to Small Biz Trends, 82 percent of businesses fail because of poor cash management!
An independent study by SEM Rush revealed that a staggering 66 percent of businesses struggle to pay their operating expenses.
We don’t mean to scare you. However, it is a fact that managing your business finances efficiently should be among your top priorities, especially when your business is small.
After all, your business needs to stay afloat before you begin worrying about the other big fishes in the sea.
Don’t worry; managing business finances is not hard if you take the right approach. Here are some of the tips that will surely help you along the way.
Partake in business financial planning
Financial decisions cannot, and should not be, made based on gut feelings and “whim.” Why? Well, the stakes are just too high for you to make decisions without concrete quantitative evidence supporting it.
This is where financial planning comes in. This includes accounting, tax planning, budgeting, forecasting, and risk management. Each of these aspects is significant for creating an overall comprehensive financial plan which will help your business is thriving.
For starters, by managing your accounts, you will have a systematic idea of how many assets you have and how much money you owe.
Budgeting allows you to allocate money to different departments and ensure that you don’t go over your limit.
You can then use your revenue and expense stream to forecast your future earnings and hence make investment decisions accordingly.
Take charge of the financial decisions by first analyzing all financial statements and accounting reports. Understand your business’s performance so that you set the right financial goals for your company.
Did you know, according to a McKinsey report, a CEO can save up to 20 percent of the time that they spend on financial tasks if the company automates financial processes! In fact, a simple accounts payable automation can cut invoice processing time by 10 percent.
For businesses, especially those which are still small, every second count. Therefore, the more efficient the finance department is, the better. Additionally, automating the various processes can help minimize the chances of error.
For instance, quality online accounting software for small businesses can help in taking care of the brand’s bookkeeping, reporting, and invoicing needs.
The fact that all transactions are entered in real-time ensures that the top management has updated financial information at all times. This is ideal for quick and effective decision-making.
Manage cash flows
Cash flows are by far the most dangerous aspects of business finance. Poor management of cash flows is the biggest reason for the failure of most small businesses.
In other words, your business might be earning huge revenues but will still fail if you don’t manage your cash flow!
To manage cash flow efficiently, take a close look at the business’s expenses. This accounts for both direct and indirect expenses as well as overhead costs (variable, semi-variable, and fixes costs)—monitor when these expenses and costs need to be paid. Match with your sales and revenue and cash inflow stream.
Always make sure that the amount of money coming in is equal to or more than the amount of money going out. Only then can your business stay afloat.
Be accurate about your inventory needs
According to People Vox, one-third of businesses miss their shipment deadlines because they end up selling items that they are short on.
Similarly, stocking up on products that don’t sell out can increase your inventory cost. Neither of the situations is ideal.
Why? Well, low inventory can lead to low sales and a poor customer experience, while excess inventory can increase the cost incurred.
Businesses should aim to achieve accuracy about their inventory needs. This is quite a challenging task. For instance, a report by PR Newswire states that an average US small business has an inventory accuracy of 63 percent.
Inventory inaccuracies are exacerbated when businesses try to reach customers through a variety of platforms, ranging from Ecommerce to physical retail outlets. To avoid this, make sure to track each channel and update your inventory accordingly.
Here too, using inventory management software can be helpful. Such solutions automatically connect online and in-store needs and notify when inventories are running out.
This ensures that you don’t stock up too much or lose out on sales owing to a shortage of your product.
- Keep a good credit score
Do you rely on bootstrapping for the finances of your business? This approach only works for the short term. If you wish to scale your business, you will ultimately need to knock on the doors of banks.
Whether you wish to purchase commercial real estate or expand your portfolio, you need a lot of cash for it all. According to Fundera, over 56 percent of small businesses use funding and loans to expand their business.
However, getting a loan is not easy – especially if you want to keep the interest rate charged at a minimum. Here, your company’s credit score is very important.
Make sure that you always pay off all your liabilities within the deadline. This includes the payments of your business credit cards as well.
The more punctual you are with your debt payments, the better will be your score. Additionally, avoid taking loans at interest rates that you cannot easily repay.
Maintain a good score so that your loan approvals become easier and the interest rate charged does not become exorbitant.
Managing business finances may seem daunting, especially if you don’t like numbers! We suggest that you hire a team for the task from the get-go.
This way, all you have to do is get the hang of the basics and monitor the overall financial health of your company.
Use the five tips to further manage your finances. By keeping money-related worries at bay, your business will be able to grow and flourish.
Erica Silva is a blogger who loves to discover and explore the world around her. She writes on everything from marketing to technology. She enjoys sharing her discoveries and experiences with readers and believes her blogs can make the world a better place.
Find her on Twitter: @ericadsilva1