Financial Advice for Small Business Owners

Published January 30, 2019

Running a successful business is all about generating profit, and this comes through not only having a product or service that is in demand but being able to manage money. Many businesses have hit the buffers purely because their money management wasn’t strong enough.

Here are some pointers to help create and maintain strong finances:

Manage your accounting

The services of a good bookkeeper or, even better, a trusted accountant will help you keep on top of routine financial management and monitor ‘how things are’. Modern accounting software helps save time when generating required paperwork and keeping accurate records to analyze financial performance.

Business plan

If you haven’t really got one or it’s sat on your hard drive without being looked at, then this should be remedied.

A business plan is the road map for running and checking the progress of your operation. You may well make changes to it along the way, but it’s important to have a document describing what you do, who for and how you provide it, along with financial information such as targets, budgets and profit and loss forecasts.

Monitor cashflow

It’s vital to understand cashflow and monitor it constantly to ensure your business can keep trading. Many concerns have hit difficulties and even stopped trading through poor cashflow, even when they’ve provided a popular product or service.

Maintaining a cashflow forecast and regularly consulting it will help avoid problems and enable you to take steps to remedy potential problems. Sometimes it’s as simple as adjusting when you pay your bills, ensuring your customers pay sooner, or being more disciplined when sending out invoices and following them up.

A financial buffer

Despite your best efforts things can change or even go wrong, so building a financial buffer to draw on if required is very worthwhile.

At least three but preferably six months’ worth of gross income is a good objective for a fund to help soften the blow of anything from an unexpected downturn in business, an emergency capital expense such as replacing a key piece of machinery, or losing the services of a key employee or contractor out of the blue.

Control expenditure

It’s easy for outgoings to creep up as costs rise, so periodically check what you’re spending on everything from utilities, supplies and other regular outgoings.

Funding

Consider different ways of funding. For example, it might be better to rent or lease certain items rather than buying and committing to a lump sum in one go.

Expenses

Go easy on expenses such as travel and accommodation: is it really necessary to splash out on luxury hotels if it’s a quick stopover where a decent motel might do?

Professional services

While paying for professional services is important in certain cases, such as a good accountant, think before committing funds elsewhere. For example, before engaging a lawyer at a high hourly rate for a simple task, maybe you can do it yourself using any number of DIY legal forms and websites available?

If you do require a lawyer or other professional – and do be aware of the pitfalls of the DIY route – establish what you want from them and how much they’ll charge as a package before committing. This can apply when talking to other people such as website designers, marketing consultants and more.

Don’t fall into the trap of accepting the ‘meter running’ type of billing if you can possibly avoid it.

Time well spent

Amidst the amounts of other tasks in running a business it’s easy to let financial matters slip, but paying regular attention to the key aspects will help your business stay in financial good health.

 

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