First let us understand the concept. Financial management includes bookkeeping, projections, financial statements, and financing, which forms the foundation for reaching your goals through sound business decisions. As a business owner, financial management is one of your main avenues to success.
When you start
For any new business, the first few years, while crucial to its long-term success, come with many challenges that must be overcome. Cash flow problems and mismanaged finances are major causes of business failure in the early years. Some companies fail to plan properly, some set their sights too high or low, some don't keep track of costs, and some fail to chase payments. Result? A financial mess that can take the business down.
Put financial management at the heart of your business
Managing your finances and cash flow shouldn't be an afterthought. It should be a fundamental part of your business strategy when you start. This way, you can maximize your chances of business success by being aware of the pitfalls. Then you can manage your company's finances carefully and keep a close eye on its cash flow.
Get close to numbers
Many business owners are numbers-shy, letting their accountants deal with them. But to be a successful entrepreneur you must thoroughly understand the numbers that drive your business. Knowing your numbers will give you the knowledge you need to keep your business running, and take informed, objective decisions.
Use financial planning for forecasting
With financial planning, you can develop a framework to keep track of finances coming into and out of your company. For example, one model for your business might be to spend:
- 50 percent of revenue on expenses (such as payroll or supplies).
- 30 percent of revenue on building the business (such as expansion of equipment or recruiting costs).
- 20 percent of revenue in the future, for developing new products and services.
Understand the true cost of money
The money you receive, as well what you spend, both kinds have value to your business. Getting value for money is important in both directions:
- Pay all your bills on time to avoid being charged interest and negatively impacting your credit score/rating.
- Look into the pros and cons of accepting different payment options such as cash, credit cards, PayPal and other options. Charges for receiving payments will eat into your profit margin, but convenience helps your customers to pay you.
- Research the costs associated with buying or leasing equipment. There could be hidden fees for maintenance or damage, not to mention different effects on your tax bill.
Different plans work for different businesses, and you should discuss this with your accountant to see what works best for you, or talk to Fintax Services for experienced advice and guidance.