Finance management is perhaps the most delicate area of doing business, even more than marketing. One mistake and you could find yourself back on the drawing board or out of business altogether. Gaining control over your business finances isn’t just something you should think about once a year, it’s never ending.
Follow these 3 fundamental business finance management tips to help you take complete control as you seek to propel your business to the next level.
1. Learn to Manage Cash Flow
For effective cash flow management, begin by creating a cash flow budget. Some of the areas the budget needs to address include sales/revenue forecast, anticipated inflows, anticipated outflows, debt repayments, and operating expenses. Remember to keep the cash flow budget up-to-date. Also ensure that the budget reflects changes in your operating environment as well as any future plans you may have.
The other thing you need to address is sensitivities in your cash flow. Know which items will have the most impact on your cash flow. Is it prices, volumes, overheads, or a combination of multiple factors?
Finally, learn to put surplus cash flow to work. Start by assessing you emergency needs and how factors such as currency or interest fluctuations might affect your business. After setting aside money for these areas, use the surplus cash flow to expand, pay off debts, or maintain your working capital.
2. Learn to Manage Credit
This applies to both the loans you take from creditors and credit you extend to customers. For credit you get from finance companies, there are a few tips to observe. First, take credit only when you need it. Secondly, choose your creditors carefully. The best credit facility depends on individual circumstances, existing credit facilities, and your business plans. Third, pay up and keep your payables up-to-date. Ideally, you need an “aging schedule” to show you how much you owe, to whom, and whether or not you’re current on your repayments. If you’re just getting started, it might be helpful to take time to learn more about invoice finance too.
When it comes to extending credit to customers, again, you need to be in control. Establish effective credit policies, identify ways to get clients to pay faster, and exercise due diligence with interest and late charges; oftentimes, those late payments end up as write-offs.
3. Keep Operating Costs Down
Things like licenses, permits, office space and utilities, equipment maintenance and upgrades, employee benefits, insurance, and late payments penalties, while mostly necessary to the running of a business, could also be the cause of your downfall, especially if the related costs spiral out of control. So, how do you keep overall expenses down? It’s not very easy. You may have to make a few sacrifices.
Begin by lowering your office space costs. If you must, move to a lower-cost location. Secondly, cut staffing expenses. Paying well doesn’t have to mean paying over market value. Still on the same point, reduce the number of salaried staff by enlisting the help of family members and friends.
Third, cut out vehicle expenses. Most businesses don’t need a dedicated commercial car after all. Finally, cut supply costs. When it comes to sourcing, every penny saved is a penny earned. So, find the best possible supplier deal. The Balance has several other tips you should consider.
Don’t Forget Technology
Automating processes and adopting technology, in general, not only increases efficiency but directly reduces costs while increasing profits.