If you have a business, your main goal would be to make money. It follows, then, that your actions should be geared towards earning a good profit – and with a good profit, you will not only stay afloat, but you will also grow and become more successful. But aside from making a profit, you can also only stay afloat and become successful if you can effectively manage your business’ finances. The proper management of your finances matters because if your finances are not managed well, you can face cash flow issues – and even the failure of your business. Some businesses fail because they don’t plan their finances well, setting it too high or too low. Others don’t keep proper track of their expenses, whilst some encounter difficulties because they failed to chase payments from their clients. So how can you effectively manage your business’ finances? Here are the best ways.
- Learn about proper forecasting and planning
You should come up with a feasible plan and financial framework so you can track your financial spending and incoming. For instance, you may want to come up with a plan like spending 50% of your business revenue on running expenses such as supplies and payroll and 30% on building or growing your business, such as recruiting staff and buying more equipment. You can also decide to use 20% of your business revenue on future investments, such as new services or products.
But you have to come up with a plan that’s suitable for the kind of business you have. One way you can decide which plan works best would be to consult central London accountants. But many businesses’ circumstances will also evolve and change, so you can create a simple forecast for your business that lasts for the next 6 months. When you do this, try to be as realistic as possible and develop an estimate of how much you may sell as well as how much you may spend. Input these figures into your plan, and if the results are positive, then you can adopt it, but if the results are not so good, you may have to switch to another plan.
- Make adjustments for better cash flow regulation
Cash flow is essential for you to monitor if you want to better manage your business’ finances, and this is also where you can make adjustments for better cash flow regulation. You should, first of all, have enough cash available to last you for 3 to 6 months. So even if you have some rough months, you can still emerge relatively unscathed. But if the cash flow of your business is causing issues at various times of the year or month, you may be able to deal with the situation by making adjustments.
You can, for example, negotiate for new payment schedules or dates with your business suppliers so your outflow will align better with your inflow. You can also try reducing your payment terms for your invoices by one or two days so your clients can settle their payments faster, and you can find ways to deal with the impact of inventory just sitting in your warehouse or office – it can cost you in terms of revenue and space as well.