If you’re like most small business owners, you probably don’t spend much time thinking about your company’s accounting or finances. Unless, of course, something goes wrong. Then it can seem like a very big deal. If your business is growing and thriving, handling its financial details may not be on your to-do list.
But if we learned one thing during the last recession, it’s that good financial management is important for any business – big or small. Uncontrolled cash flow, unorganized accounting records and insufficient financial planning can make even the best business ideas fail.
To help you avoid that fate, here are some tips from financial experts on getting your business finances in order.
Use an advanced software solution
It’s important to pay attention to budgeting and accounting. The more you know about how your business works, the easier it is to set up a budget with accurate records that allow you to track the progress of your business. It also makes it easier to identify problems and suggest solutions.
The best software solution for managing your business finances is one that can help with all aspects of your finances. Check out Quickbooks software setup and learn how your business can benefit from it.
This software allows you to create an expense account that tracks expenses, employees’ costs and revenue, as well as a profit system in which you can track profits or losses of all businesses within the same organization. It also offers several other useful features.
Estimate your income and expenses
If you have been in the business world for any length of time, you will have heard of the 80/20 rule. This rule suggests that 80% of your business’s revenue will come from 20% of your clients. However, what you may not know is that the same rule applies to expenses: 80% of your expenses will go to 20% of your business’s expenses.
This is a very important rule for new business owners to keep in mind as they get their company’s finances in order. It means that you need to be very careful with your expense reports. You need to ensure that you are not spending a disproportionate amount of your capital on any one expense. You also want to be certain that you are estimating your income accurately.
Track your inventory – and be honest about it
People tend to either vastly overestimate or underestimate the amount of money they will make selling inventory. If you are one of the business owners who are overconfident about your expected revenue, you should take inventory of what you actually have in stock. This will give you an accurate picture of the situation. If you are one of the overly pessimistic types, you should, likewise, take stock of the situation.
If you are selling inventory that you have bought on credit, you have to track that inventory carefully. You will want to make sure that you are paying your suppliers promptly to prevent them from calling in debt.
On the other hand, if you are selling inventory that you have financed, you need to track your inventory carefully. This will enable you to make timely payments on your financing obligations.
Commit to a payment schedule
You don’t want to get into the habit of living from one payday to the next. However, you also don’t want to get into the bad habit of constantly falling behind on your bills. This can lead to severe financial problems and even business failure. To avoid these problems, you need to create a budget. This budget should include not only your expected income but also your expected expenses.
You also need to set payment schedules for your expenses. This will enable you to avoid falling into the trap of constantly being behind on your bills. If you have credit cards, you need to make certain that you are paying at least the minimum payment by the due date each month. If you don’t, you could find yourself in a financial crisis that is hard to get out of.
Establish an emergency fund
An emergency fund is an amount of money that you keep in a savings account. This fund is available to you in case of an unforeseen financial crisis. In the event that you lose a major client, have a disruption in your supply chain or suffer some other financial emergency, you can use the money in your emergency fund to keep the business afloat.
Given the unpredictability of business life, you should have an emergency fund with enough money to last at least six months. This will enable you to remain solvent while you work on correcting the situation.
Your company’s finances are a crucial part of the business. If you neglect this, you will find it difficult to grow your company or even to stay afloat. As such, it is important for every business owner to understand the essentials of good financial management.