Managing business finances is pertinent in keeping a business running while making informed decisions that will result in business growth and expansion. So if, as a business owner, you are ready to start managing your business finances better, these are a few ways to help you do that effectively, among others:
Separate business from personal finances
One main reason new businesses run into problems within a short period is the inability of business owners to separate funds meant for running the business from their personal funds. There should be a clear difference between these two and, as a matter of fact, a separate account (corporate/business account) should be opened for the business where all incomes and expenses relating to the business should reflect as this will enable the business owner track all transactions relating to the business properly and avoid mismanagement.
Have a cash flow statement
This is a statement that provides information on all cash-related activities of the business. It helps to give a true picture of all cash-related transactions of the business with respect to inflows and outflows through the following means:
- Cash Flow From Operations. This strictly looks at cash flows (inflows and outflows) relating to the core business operations.
- Cash Flow From Investments. This looks at cash flows from investing activities i.e cash generated or spent on the sale or purchase of physical assets for the business.
- Cash Flow From Financing. This looks at the cash generated from issuing debt or equity for the purpose of raising capital for the business and cash outflows relating to dividend payments to investors of the business, share repurchase, etc.
Keep track of expenditures and their corresponding returns
There is a need for businesses to keep track of their expenditures and the corresponding benefits derivable from such expenditures. For instance, if a business incurs an advertisement cost, there is a need to know if the business is gaining traction from the paid advertisement, i.e. if the advert is giving your business the desired response as this will help you know whether or not to continue incurring that advertisement cost. Business owners should be able to look at the benefits the business can derive from incurring an expense as that will help in determining whether incurring such an expense is really needed for the growth of the business or not.
Proper record keeping of your books of account
Proper record keeping is essential for any business, be it a small or large-scale business. Business owners should be able to keep records on a daily basis of all transactions related to the business with respect to income and expenses, no matter how small the transactions are, as this will enable business owners to be able to have a clearer view of all the activities of the business as well as help them in making a proper plan.
Once a business is unable to keep proper accounting records from the start, it becomes a big problem for such business later as the company grows, which then makes business reporting cumbersome in the long run.
Ensure there is a good billing strategy
It is common knowledge that businesses with very high debtors balances or accounts receivable run the risk of not having enough liquidity to meet their obligations, as a significant portion of the money that should be used for managing the day-to-day operations of the business is tied down outside due to credit sales or provision of services to clients without immediate payment.
Business owners should be able to put strategies in place to check this so they don’t run into financial problems and find it difficult to keep the business afloat.
A well-managed business keeps a proper record of all expenses and incomes and keeps track of its finances to make an informed decision that will result in business growth.