Making profits is almost certainly one of the reasons you decide to go into a business. That means handling finances and cash flows properly must be a vital aspect of your operations. Mismanagement of finances will cause your business to fail therefore you have to start taking the right steps to avoid any pitfalls. Below are some practical steps you can consider to help you keep track of your finances more effectively.
Lay Down a Financial Plan
Start by laying down a plan that identifies all of your outgoings and income. This must include all of your expense items, no matter how trivial... Once you have identified all of your outgoings and income, there are several ways to automate the process of tracking the items on a monthly basis. One example is to use a pay stub maker which will help you to automatically keep track of all salaries and other expenses you have every month. It will enable you to forecast how much of your revenue will go on payroll expenses. Depending on the type of costs you incur, you can lay down different plans. This will also make it far easier for your accounts department to keep track efficiently in an automated way, rather than manually which can be more prone to error.
Be Realistic With Your Forecast
Making a healthy profit is important. The quickest way to profit is to control your expenses effectively and to have an ambitious goal for your business. However take care, use your ambition along with rational decision-making to forecast your financial goals. Decisions should be based on facts. There will certainly be times when you make the occasional mistake. Use this as a learning point to gather information and review your expectations and, of course, recover from any financial losses. Successful businesses take a pragmatic approach and grow over a long time. Taking occasional risks should be a part of your business but any risk should be assessed and verified by others before a decision is made.
Continuously Improve Cash Flow
As a business, you should always strive to have enough funds to last for several months, should there be a lack of income. This will help you to continue your operations even if you hit a rough period. You can make minor adjustments regularly that can help improve the regulation of your cash flow. If you have suppliers who give you credit terms, then negotiate for extended payment dates. These dates should be aligned with your cash inflows and outflows. As for your customers, you can offer discounts or other such options to encourage them to pay their pending invoices faster. Secure a credit line in advance to gain fast access to funds in case you run into unexpected debts.
Handle Your Company Debts
For start-up companies, loans are commonly taken during the first phase. For established businesses, debts are often incurred during times of expansion. For most businesses, being in debt is common. However, care should be taken to plan for debts in exactly the same way as you plan for outgoings and income. Make sure you read the fine print while taking a loan so that you do not run into high borrowing costs.
Debt is simply another business expenditure and should be reviewed regularly in the context of all expenditures.
Go After The Money You Are Owed
For all clients, make sure you add invoice payment terms and policies clearly from the start.
It is very important for you to collect all the money you are owed in time so your cash flow remains stable. You can use accounting software to analyze which of your clients have aging invoices that they have not paid. You can ask them to pay politely or use invoice factoring services for the same. By doing so, you may lose a small amount of money but it will certainly help to stabilize the cash flow.
Review Opportunities Closely
There will be times when you get an opportunity to bid for a big contract. Before pitching for it, consider the impact the contact will have on the business as a whole. It may be very exciting to take a large prestigious contract, but it may not be the right choice for your business. Check if you have all the resources to fulfill it. For example, you may need to hire more staff to fulfill a particular order and the cost of doing that may be very high. You may lose focus on your current clients and that could mean that after you finish your contract you will not have any clients at all. For all sales, large or small, it is important to consider the impact on the business. You should be aiming to build a balanced portfolio. That is a considered number of small, medium, and large clients. The test is, if a client were to terminate a contract, will the termination put you out of business? This is the risk that you as a business owner would have to carefully assess.
Focusing on business finances is often viewed as a necessary evil that takes place, begrudgingly, once a month. However, in reality, it is the core of the business, and as such be sure to give it the highest priority and build in the right strategies to keep it aligned