Managing business finance is as difficult as managing personal finance, if not more. While start ups can fail due to a variety of reasons including an unrealistic idea and poor marketing, an important reason for business failure can be poor management of finances. Here are some tips to manage business finance:
Be aware of financial aspects: As an entrepreneur you may not be aware of intricacies of finance and accounting. However you must make yourself aware of important financial aspects like concepts of a balance sheet, income statement, cash flow statement etc. This awareness helps you have better control on your finances.
Maintain proper books of accounts: Maintaining a proper record of transactions is very important and the first step in proper money management. Many a time, due to improper records, businessmen are not aware of critical aspects like receivables position, what they owe others and the value of assets of the business. This can lead to incorrect financial decisions which may hamper your growth.
Take the help of a professional: As a businessman, you may neither have the time nor knowledge to manage your finances yourself. This does not mean that you neglect financial management. It is recommended to take the help of a professional to manage your accounts and suggest improvements in financial management. This brings in a professional touch to your business finances.
Watch your expenses: It is important to be prudent of your business expenses at all times. For example, instead of renting a lavish office from day 1, you should look at cheaper options till you can afford a larger office. Again, while there is nothing much that can be done about fixed expenses, you must look at optimising your variable expenses. Preparing a budget and sticking to it is a good way of controlling expenses. While preparing a budget, remember to keep a buffer on miscellaneous expenses - this is where most entrepreneurs overshoot budgets.
Invest in technology: The importance of technology is often under estimated by small businessmen. However investing in technology can help in easing daily operations and also helps in improving efficiencies. For example, a good system helps in tracking due dates of payments which you owe others and what others owe to you. This can help in planning for cash flows.
Make a business plan: It is always advisable to make a business plan when you begin a new business. This can help in understanding how long you will take to recover your investment, the sales and marketing activities needed, planning scaling up and the requirement of funding at different points in time. Although many businesses function without a plan, you will be better guided when you have one.
Go easy on debt: Some companies thrive on debt and all growth is planned on the back of their borrowings. This is very unhealthy both in the short term as well as over the long term. Your earnings should be able to feed the growth of your business after the initial payback period. That said, you must also be aware that the right amount of debt helps in reducing tax outflow. Therefore one must borrow wisely in a business and maintain ideal debt equity ratios.
Business finance management can be quite complicated if you lack discipline or do not have a plan to grow your business. Following basic ground rules and being prudent help in proper management. How has your experience been in managing your business finances? Let us know what you think