Every year businesses wrestle with their finances. And every year they end up running into the same problems. Most of the time it’s because they haven’t taken the time to do the research and investigate their options. They fall into the same traps and end up with the same problems. Perhaps now is the time to turn over a new leaf and start doing finance properly. Here’s a step-by-step guide to taking back control of your business finances and doing the best you can for your company.
There are very few businesses that chug along, month-to-month generating the same income. For most businesses, income goes up and down. And that means that there will be some points during the year where you’ll be strapped for cash. A lot of businesses don’t bother trying to forecast these lulls in demand. As a result, they end up running into serious cash flow issues during the year. That’s why it’s essential that your business makes a forecast for the year ahead. Then you’ll be able to pinpoint when cash will be tight and know how to regulate spending through the year.
All businesses face risks. They face the risk of future recessions. They face the risk of interest rate hikes. They even face the risk of exchange rate fluctuations. All these risks can play out in the real world and put downward pressure on their bottom lines.
When the economy turns bad, a lot of businesses immediately run into problems. That’s because they haven’t built up the capital that they need to weather the storm. As soon as things take a turn for the worse, their finances nose dive. Businesses, therefore, should build up a pot of reserve money, just in case. Reserve money should be held in liquid form. And it should be ready to deploy if any risks surface.
Take Out Capital-Specific Loans
Most small businesses will just go to the bank and take out a generic loan for whatever they need. But this isn’t always the best strategy. Often, it’s better to go with a loan provider that specializes in a particular type of loan. That way you can be sure that you are getting the best deal. For instance, many small businesses rely on heavy vehicles, like car transporters and cement mixers. But all too often they ignore the fact that they can get specialist truck finance. Instead, they just dip into a regular bank loan, and this ends up costing them money in the long term. That’s why it pays to take out capital-specific loans for your small business.
Set New Goals Every Six Months
The last thing you want is for your business to be static. You want to drive it forward and seek new opportunities. Ultimately, you want your business to be more profitable. Having a profitable business takes a lot of planning and a lot of vision. And that means that you need to revise your financial goals on a regular basis. Setting out a new vision every six months will keep you on top of all the things that can go wrong in your finances. You’ll get a bird’s eye view of inefficiencies in your business. And you’ll be able to pinpoint your priorities going forward. It’s essential that your business has new goals to which to aspire.
Review Your Insurance
Insurance is a big cost for businesses. Even the most basic packages can end up making a significant dent in your finances. However, you could be missing out on insurance savings if the nature of your business has changed. For instance, you might have started as an office-based business. But now your business is based in the cloud. In that case, perhaps your employers’ liability premium will be lower.
Also, if your product has changed, so too might your public liability insurance. So it’s worth checking in with your insurer to find out whether there are any savings to be had.
Improve Your Finance Management
Administration is a significant cost for most businesses. But have you asked yourself whether everything your administrators are doing is necessary?
One of the biggest drains on administrative time is sorting out your business finances. Invoices, tax returns, and receipts can all add up to generate an enormous amount of clutter. Decluttering by using software can help improve cash flow management and streamline your processes. Most cash flow management software allows you to digitize all your receipts and invoices. And that means you don’t have to spend lots of time archiving or managing bits of paper in the office.
Set Up A Business Account
Many sole traders and partnerships aren’t obliged to set up a separate bank account. But a separate business account can come in handy when it comes to tax time. One of the reasons for this is that it makes it easier to track money in and out of the business. When all of the transactions of the firm are in a single account, it’s easier for accountants to calculate taxes. And that, in turn, means that your business ends up spending less money on accounting services.
Clear Bad Debts
Small business owners know that debts that have gone bad can be crippling. That’s why it’s important to make paying off bad debts a priority. Interest payments rise quickly, following late payments. And your business might also be liable to pay extra fees.
Inspect Your Budget
Because your business is forever changing, so too should your budget. Every quarter, sit down and review how your business is spending money. You want to make sure that all expenditure is relevant and actually moving the business forwards. Be critical of where you are spending your money. Ask yourself whether that expenditure is still relevant to your goals.
By being critical of your budget, you’ll soon make your money work smarter and harder for you. And when you do this, you’ll notice your bottom line steadily improving. Remember, only spend money on the things that really generate a return. Don’t bother with all the paraphernalia of business: most of it is just for show.