No matter how big or small, effective financial management is the heart of every business. A potentially profitable business can fail without planning and the correct execution of financial strategies. After all, a company earning profits can suffer from a massive liquidity crisis due to a cash shortfall.
Therefore, you must learn the art of financial management to push your business toward success. From managing invoices to acquiring loans, you should be on top of all money-related matters. For this, you should work on financial literacy and recruiting a team of finance experts. They will guide you during crucial business decisions while helping you implement the right strategies.
Most importantly, invest in FinTech – Financial Technology. Lately, intelligent software solutions have automated all repetitive tasks. They can help you record transactions, prepare financial statements, and store financial data remotely. Besides improving control over finances, it increases transparency, enabling business leaders to make more apt decisions.
Let us show you the ropes if you don’t know much about financial management. Here we have listed some tips to help manage your business finances.
Get Acquainted with Financial Rules
Surprisingly, financial management goes beyond calculating revenue and profits. Once you register, a business must comply with International Accounting Standard (IAS) and International Financial Reporting Standard (IFRS). These regulatory bodies assist companies with financial entries. Whether you bought new equipment on cash or lease, they have listed the correct accounting treatment. Thus, be hands-on with all the accounting standards.
For that, you either have to get an accounting certification or pursue higher education; perhaps, an MBA. Nowadays, many colleges offer MBA finance online, providing a flexible learning opportunity for professionals to study and manage their businesses without trouble. Such specialized programs can familiarize you with all financial laws and regulations, ensuring competent financial management.
Explore Financing Options
Is your business struggling financially? If so, consider acquiring a loan. External financing can come in handy when the company is in dire need of funds. It improves working capital, allowing the business to continue its operations. In addition, loans can help resolve massive cash flow problems since they inject new money into the business.
Further, loans can also fuel business growth. You can acquire asset financing to purchase equipment or machine for the company. It will increase your production capacity while expanding the revenue stream. Hence, don’t hesitate to apply for a loan if your company suffers from a financial crunch.
Develop a Solid Billing Strategy
Believe it or not, a client is always consistently late with payments and invoices. These late payments might not affect profitability but disrupts cash flow. After all, it creates a shortage of funds in the business. Thus, a significant part of managing business finances is ensuring customers pay timely. For this, you should develop a solid billing strategy.
Instead of bugging them with multiple calls and messages, define the payment terms on a contract. You could impose a penalty or late fee if the client fails to pay timely.
Likewise, you can encourage them to be regular with their payments by offering a cash discount. You can draft the payment terms to 2/10 net 30, meaning if the customer pays within ten days, they will get a 2% discount. If not, they have to make the full payment within 30 days. Having a billing strategy in place will encourage customers to pay timely.
Keep Track of Cash Flow
Do you know what cash flow is? In the business world, money moves into and out of business over time. The business’s cash comes from ‘income’ from customers who purchase goods and services. Likewise, the money that goes out of the business is an ‘expense’ that a company incurs to pay suppliers and vendors.
As business engages in multiple transactions daily, keeping track of cash flow becomes arduous. But for effective financial management, you must monitor the activity and keep the cash flow positive. That means the money going out of the business should always be less than the money coming into the business. It will ensure your company has sufficient funds to pay for routine expenses and keep the operations running smoothly.
Invest in Business Growth
Most entrepreneurs reinvest their profits into the business. While it might seem the right approach, it is not wise. Putting all money into one business means increased risk. So, why not diversify?
As an entrepreneur, you can invest your profits in various mediums. Let us help you unfold a few options.
- Stock Market: You can shortlist the top-rated companies and purchase shares. In addition to becoming a partial owner in another company, you can enjoy dividends. These dividends will reflect in your company’s balance sheet under the subject of investment income. Remember not to invest all your money in one company and diversify your portfolio.
- Financial Instruments: Bonds, Certificates of Deposits, and Treasury bills could be another medium for investment. They offer a higher interest rate than the market, offering profitable yet risk-free returns.
- Real Estate: Investment in real estate is always the best choice. Besides monthly rentals, you will enjoy a premium on the property’s value.
Work Out Taxes Smartly
Tax calculations can always be chaotic. So, how about you spread out tax payments? Instead of yearly tax filing, you can make it a monthly task. That way, you can treat taxes like every other operating expense. You will deduct tax expense from operating profit, giving you the exact monthly profit.
Further, keep up with the federal income tax rate to determine the slab rate that applies to your business structure. Sole proprietors are only liable to pay income tax, whereas limited liability companies have to pay corporate tax. The slab rates for all taxes are different; hence, calculate it correctly.
Truthfully, staying on top of all money-related matters is challenging but possible. You must get acquainted with the finance world to understand how things work. Likewise, manage your money smartly to maximize the return on investment.
Most importantly, entrepreneurs should streamline routine operations such as billing and expenses to improve financial management. These few things can go a long way in building financial stability for a business.