Managing your finances is one of the most important business functions your company can have, and it’s no exaggeration to say that money management can literally make or break your business. At the same time, financial management is one of the biggest challenges facing a business owner, and it’s one that you simply must get right, or your business will eventually founder and fall by the wayside. By finding ways of managing your business finances in an advantageous way, you can position yourself for acquiring loans in the future that will help grow your business.
Manage Your Inventory
When you have a good inventory management system in place, you’ll be able to have a real-time record of all levels of inventory in your company. It’s important that you have this accurate record of inventory so that you can maintain the appropriate quantities of stock to provide the level of customer service you desire. When stock levels slip below the optimum, it’s very possible that you will miss out on sales opportunities, and that could cost you customers. On the other hand, if you’re not managing your inventory well and you are overstocked in several areas, that will tie up cash needlessly, and leave you less operating capital to work with.
Monitor Your Financial Status
It’s very important that you understand the financial position of your company, in terms of cash on hand, sales that have been made, and what levels of inventory you have. Accurate record-keeping is one of the best ways of tracking your progress, compared to the targets you have set for a certain time frame. When you consistently under-perform and miss your weekly or monthly targets, it’s a sign that you need to adjust something in order to start hitting those targets regularly.
Prepare and Follow a Business Budget
When you’ve established a good workable budget, it will work very much like a checklist in determining how you spend money for your company. Of course, it’s essential that you have accurate record-keeping, so that you’ll be able to verify that you are operating within the budget you established. When you comply with the budget levels you have set for yourself, it can help you avoid any unnecessary losses or debts. At the same time, it will also let you know when it might be appropriate to reach out to lending institutions or other financiers, to cover temporary cash-flow issues. By compiling an effective and accurate budget, you’ll have a roadmap which can guide you to business profitability, because it will be able to clearly show you your available resources, your anticipated revenues, and your projected expenses.
Track Daily Costs
To avoid cash flow issues, it’s important that you keep good track of your expense records. One of the main reasons that businesses collapse and go under is the fact that they are consistently running into cash flow problems, and don’t have adequate working capital to cover operational expenses. The money that comes into your business on a daily basis should be adequate to cover such operational costs as rent, utilities, and payroll. By keeping accurate records of all your day-to-day costs, you should be able to ensure that your business is operating within its available resources, and not falling into a deficit situation.
Reinvest Profits Back Into the Business
Every business wants to get a good return on their investment, but in order to achieve genuine business growth, it will generally be necessary to have a plan for reinvesting profits back into the business. To increase business profitability, you’ll have to watch your overheads, and you’ll need to gain efficiencies wherever possible. You’ll need to optimize human resources, you have to use automation where it’s appropriate, you have to recycle and cut waste, reduce your power consumption, and maybe even go paperless for greater efficiency. Sometimes you won’t be able to hit your business growth targets, even by reinvesting profits, especially if your profit margin is not all that significant. In cases like this, it may be necessary to seek external funding through invoice discounting, credit lines, and traditional business loans.
Decide on Metrics to For Tracking Income and Spending
If you’re the owner of a small business, it’s pretty easy to set up a spreadsheet so that you can track all spending and income trends. There are many other software tools you can also use for this purpose, but the main point is to always have a handle on how much money you’re spending and how much is coming in. By monitoring these two trends very closely, you’ll be able to make all your business payments to creditors and vendors on time. It will also allow you to stay totally aware of when customer payments are due, so you can follow up on prompting them if need be.