10 Time-Tested Financial Management Rules for Small Business
Business finance is a sophisticated art that combines numbers and common sense. A well-managed business financials will help smooth business operations, take advantage of great opportunities, gain long-term business stability and save money for the business. Achieving your business goals will highly depend on how you use, control, manage and monitor your business money.
Here are ten time-tested business finance rules that will help your business gain competitive advantage and the trust of your stakeholders.
1. Never combine business and personal finance – Setting up a separate business account should be part of your business preparations. Combining your finances will only lead to confusion and mismanagement of funds.
2. Manage your cashflow – Plan expenditures, projects and other business activities with your cashflow. Understand the movement of cash in your business. Factor in seasonal sales, yearly payments like taxes and license renewals, expansions and other business events that will significantly affect the cashflow.
3. Keep a close eye on receivables – Sales on credit are recognised income, yet the asset is still not on your hand. Focusing on making sales is good, but also make sure that you’re keeping close tabs with your accounts receivables. Implement initiatives to facilitate collection like discounts to early payments and penalties to overdue accounts.
4. Pay debts on time – Also keep an eye on your accounts payables. Unpaid bills will accumulate interest charges, adding to your costs and overhead expenses. Penalties and interest expenses are easily avoidable costs. Take advantage of discounts offered by suppliers and creditors for early payment.
5. Monitor expenses – Keep track of what you’re expending on. Are your suppliers giving you fair prices? Do you really need to two delivery teams? Know the optimum level of stocking for your business, stocking too many will risk spoilage and increase your storage and warehousing costs, stocking too low will risk stock-outs and lost sales opportunities.
6. Have an emergency fund – Maintain a reserve fund that will cover at least two months of business operations. You cannot risk not paying electricity or your employees because of an uncleared cheque. This fund will also cover emergency outlays like a machinery breakdown or taking advantage of a good deal.
7. Keep track of your financial position – How is your business financially? How much money do you have in the bank? Are you paying off your loans on schedule? Do you have enough stocks in the warehouse? What is your profitability index? Is your business growing in terms of asset growth or net worth?
8. Seek professional help – Most entrepreneurs are innovators, builders and experts in their fields. They develop products, services and concepts. Sadly, not everyone is adept at running a business on the financial side. A business finance professional can expertly guide you through the multifaceted world of capitalisation, returns, profitability and strategic taxation.
9. Keep the books up to date – Bookkeeping is an essential tool for business. It records your business performance, movement and events. The reports derived from your books of accounts will give you a bird’s eye view of how your business is doing. An accounting and bookkeeping software will also enable you to generate instant reports, view running numbers and easily retrieve past records.
10. Pay your taxes on time – Taxation is unavoidable. It is a legal requirement that all businesses must adhere to. Avoid late reporting which will cost you penalties and interest charges. Up to date books, ample time to prepare and a professional tax agent will ensure timely and accurate lodgement of BAS and GST.