Managing money is a key aspect of running a successful business and this usually boils down to managing outgoings and income and ensuring that at all times there is ‘money in the kitty’. Many seemingly successful businesses offering an in demand product or service have foundered due to poor cashflow, so keeping funds under control is vital.
Planning and forecasting
Knowing where you’re headed and how you’re going to get there helps clarify your financial situation and prevents funds being wasted or being spent in the wrong areas.
Knowing where you’ll direct funds by asking why you’re spending this money is the sort of attention to detail that helps good control of funds.
Naturally things can change and the important thing is to be ready to adapt.
Cashflow monitoring and forecasting
Sound cashflow is key to a successful business, so ensure you keep a grip on yours through regular monitoring. Using modern accounting software enables you to monitor immediate profit and see quickly how income and expenditure is faring over given time periods and to spot trends and deal with them.
For example, if your business has seasonal demand for its products or services, then you know when the lower income yet (possibly) higher expenditure times are and plan accordingly so as not to run short of ready money.
In general, it’s recommended to have enough cash at hand at all times to last at least three but preferably six months.
Even if you don’t have a specific cashflow issue, you can take steps to improve it and thus keep a tighter rein on your funds:
- Consider incentives to encourage faster invoice payments from your customers: even reducing the acceptable payment terms by a few days could help
- Perhaps review your payment dates to your suppliers to better correspond to when your income is greater (end of the month, quarter and so forth)
- Put in place a dependable line of business credit so you have access to short term funds if required
Many businesses have debt, whether that’s for starting up or investing in expansion such as new premises and more equipment.
Review your debt arrangements on a regular basis; the facilities you currently have may no longer be the best for your circumstances and you could save money by changing lender.
Ask your accountant to look into this and help you make a sound decision.
Check where your money is going and, along with your cashflow forecasting discussed above, use profit and loss and balance sheet reports to check income, expenditure and profits.
While your accountant can help with this, it’s worth spending time becoming familiar with basic business financial reporting if you’re not already. Also, take time to keep abreast of business financial news, trends and information.
Create and monitor accounts payable and receivable reports so you know how much money you owe – and who owes you – at any given time. Unfortunately, businesses can struggle purely because they’re not adept at chasing and collecting money owed to them; don’t let it happen to you.
Shop around to regularly check you’re getting the best deals and rates for services and supplies you purchase by reviewing what you pay.
Sometimes terms that applied when you were a smaller concern can be improved if you’ve expanded and, say, order more from a given supplier – so do check. You could make considerable savings.
Good financial practices
Along with the steps above, a few other items will help you control your funds:
Pay your bills on time – you’ll avoid interest charges and the possibility of certain suppliers reducing or removing their credit facilities
Payment options – both for you and your customers. Could different payment options help you save on expenses? For example, opening an account with a supplier rather than paying separately each time you buy supplies.
Similarly, perhaps you could offer customers more payment options: making it more convenient, and thus easier, to buy from you can encourage new customers to come on board, and make your existing clientele buy more of what you’re selling.
Money management is the hub of your business
Understanding the financial health of your business at all times and being aware of the amounts needed to successfully keep trading are fundamentals to keeping control of your funds.
A ‘little and often’ approach to monitoring your business’s finances will help you keep on top of this.