Managing business finances – some golden rules
Posted on: 10 January 2014
Experts never lose interest in trying to determine why start up businesses fail. The truth is there are many reasons, but right up there amongst the most common causes is a failure to manage finances effectively.
Get this aspect of running your business wrong and you will get into trouble, guaranteed!
Here are our Top Premierline Tips to help manage business finances effectively.
- Keep your eye on cash rather than just sales. Focus on the lag between a sale and getting money in the bank. Plan for it as well as try and work out ways to speed it up.
- Try to have several revenue streams. Whatever business you're in, being reliant and solely focused on one sale, one contract or one revenue stream can leave your business too exposed to unexpected events - like late or even non-payments.
- Keep your books in excellent order. It helps in business planning and can save you a huge amount of time further down the line. There's no great secret, just record all financial transactions in a way that can be easily understood and cross check your bank statements with your own records. A simple spreadsheet, plus a back up copy usually does the job. If your business needs are complex, using a good software program will make all this much simpler.
- Understand everything. If something doesn't make sense or is baffling, get to the bottom of it; use all means to understand it. The tools are nearly always at hand - ask your accountant, look on the internet.
- Don't settle bills early unless it means a discount. Equally, make sure you keep a good payment record and sound credit rating by never settling them late.
- Watch out for excess cash that's just left sitting in your bank account. Know what the minimum amount your bank requires - if any - and leave no more. Use the money for a more useful purpose.
- Manage your inventory as efficiently as possible. It is simply cash waiting to be turned into sales.
- Allow for tax. Whatever else you can cut, save on and delay payment on, this is an area that doesn't allow for compromise. Know ahead of time what your tax liability is likely to be as sales are made and revenue comes in and budget for it.
- Have a really rigid policy on accounts receivable. Follow up immediately on invoices that are late being paid and perhaps refuse to deliver more orders until older ones are settled - effectively withdrawing credit. If you receive cheques, don't delay - get them into your account immediately.
- Have a reserve fund of cash, especially at the beginning of the business's life. You may take a long time to reach profit, an unexpectedly long time, in which case you'll need cash to keep the business - and yourself - afloat.
- If you're using a loan to get your business off the ground, ensure you maintain a good credit rating by prioritising repayments and always making them on time. Your business may need to rely on this sound credit rating in the future.
- Regularly review all financial matters relating to your business and especially carry out an inspection to see if there are hidden pockets of cash - areas where you can make savings, or speed up payments. Even small savings can make a big difference to your bottom line when accumulated over time.
The information and tools contained in this guide are of a general informational nature and should not be relied upon as being suitable for any specific set of circumstances. We have used reasonable endeavours to ensure the accuracy and completeness of the contents but the information and tools do not constitute professional advice and must not be relied upon as such. To the extent permitted by law, we do not accept responsibility for any loss which may arise from reliance on the information or tools in our Knowledge Centre.