Educating yourself in financial management is vital for business owners. One of the biggest concerns that small business owners have is managing their finances.
Studies show that this concern is felt by 59% of business owners. This shows that there is a real need for support for business owners to develop the key skill of financial management.
If business owners are not managing their finances very well, then this often becomes apparent when it is time for them to do their taxes. They need to get all their records straight, but this can be difficult without the right knowledge and skills.
12 Financial management tips For business owners
Once you get to grips with managing your finances, then all aspects of running your business will become easier.
The following guide contains information about the things that you need to have in place to help you manage your finances.
1. Create A Business Plan
Your business plan should include all the long-term financial plans that you have for your business.
This includes profit and loss projections , and financial targets you will be working towards.
2. Ensure Good Record Keeping
You will need to be able to keep track of the money that you have coming in, and where it is being spent. In order to do this, you will need to ensure that your record keeping is always up to date.
This may be a task that you find dull, but it is necessary if you want to remain in control of your finances.
3. Understand Your Cash Flow
If you are keeping your records up to date, then you should have a good idea of the cash flow status of your business. This will let you know what you can afford, and when the best time to make a purchase will be.
When you understand your cash flow you will be able to identify the natural peaks and troughs that will occur.
4. Know When To Get Help From A Professional
If you are trying your best to keep on top of your finances, but are finding it tough, then don’t be afraid to get help from an accountant or financial adviser. This can save you a lot of problems in the long run.
5. Keep Personal And Business Transactions Separate
Your business finances shouldn’t be seen as an extension of your own personal money.
It is highly recommended that you get a separate bank account for your business transactions.
This will save you a lot of time trawling through bank statements to identify which transactions relate to your business.
6. Ensure All Paperwork Is Dated
Everything that relates to your finances such as receipts, invoices and statements should be marked with the full date. This will make the process of tracking back much easier if there is a mistake that needs to be rectified.
7. Don’t Get Confused Between Cost And Value
‘Cost-Principle’ is a term that is often used by accountants which explains the difference between cost and value.
The cost is the amount that you pay for something and it will be recorded as a cost in your accounts. If you sell this item at a later date for a profit, then this is only when the value of the item will be recorded.
8. Always Disclose Everything To Your Accountant
Your accountant can only ensure that your accounts are accurate if they are given every bit of financial information to work with. Keeping things from your accountant will only cause more problems in the long run.
9. Start Preparations For Tax Returns Early
Nobody wants to think about taxes before they are due, but being prepared can make things a lot easier.
Your accountant may suggest that you put some money aside in a separate account so that you already have something in place to cover the bill.
10. Set A Schedule For Paying Yourself
You will need to decide whether you want to pay yourself weekly or monthly. Either one is fine, but you need to stick to the same schedule so you always know how much money you have available.
11. Be Clear On Your Payment Terms
You will need to be quite strict about ensuring that clients meet their payment terms. If you give too much leeway then this can have a negative effect on your cash flow.
12. Check Your Books Regularly
You should set aside some time every couple of weeks or so to go over your books. This will ensure that any problems are detected early while they are stilll fairly easy to put right.
Should I Learn Financial Management As A Business Owner?
Financial management is one of the most important aspects of running your own business.
As your business grows and matures, it will require additional cash to encourage its growth. It is crucial to plan and budget for these financial needs.
Financial managers will need to decide whether to fund a business expansion internally or to borrow from external lenders.
If your finances are badly managed, then it could be mean the end of the business, even if you are doing everything else right.
If you have only just started your business, then it is quite common for you to experience negative cash flow, so this is not necessarily something to worry about.
Employees and suppliers need to be paid even when more money is going out of a business than coming in.
This is why it is important for a business owner to make financial projections of these negative cash flows. From this assessment, you can work out how much capital is needed to become profitable.
Good financial management will means that you can manage the balance sheet of your business and prevent it going too far into debt.
Learning financial management as a business owner is an important skill. Read the full article on skills required for a business owner.