When you’re running a business, financial management might not be where your expertise lies, but it’s a crucial part of owning and operating a company. To ensure that you stay on top of your business finances, this article will cover seven financial management facts:
1) Learn the reporting basics
2) Always create a budget
3) Separate your business and personal finances
4) Cash flow is king
5) Create credit control measures
6) Invest in software
7) Find professional help
Learn the reporting basics
You can’t ignore reporting for your business. Not only will you need reports to understand your company’s financial health, but you may also need them for tax purposes, to improve your business and for proof of finances if you’re seeking investment. Using financial reports can help you spot areas where your business could run more smoothly and efficiently.
At the very least, you should know how to pull together a cash flow statement, a profit and loss statement and a balance sheet. You can find more detail about how to create these reports here.
Always create a budget
Without clear financial planning and budgeting for projects and operational needs, you may end up spending too much or even too little, hindering your chances of growing your business because of poor cash flow.
When creating a budget, always try to include a small amount of ‘fallback’ cash. Creating this backup fund gives you wiggle room should plans change, or if you have a sudden unexpected rush or loss of business that you need to fund. It also gives you the chance to say yes to opportunities that come up, because your operating costs are already taken care of.
Separate your business and personal finances
Use a business current account to keep your personal finances separate because it means less admin and potential confusion when it comes to reporting, tax assessments and keeping the right documentation.
If you are set up as a limited company, it’s a legal requirement to have your personal and business accounts as separate entities. If you’re a sole trader, we recommend keeping accounts separate for ease. It saves you from spending business money on personal expenses, and vice versa, and you will be far more organised when you need to provide proof of expenses on your tax return.
Cash flow is king
The stream of money that flows in and out of your business is your cash flow. The cash you receive is called inflows, and the money you spend is outflows. Every business wants positive cash flow where you have as much liquid cash in the bank as possible, meaning that operating expenses, your wages and any unexpected bills are taken care of.
A good phrase to remember is: Turnover is vanity. Profit is sanity. Cash flow is reality. As much as turnover looks good, and profit will keep you sane, cash flow is the lifeblood of a business. Without good cash flow management, it is likely that your business will struggle to keep going in the long run.
Create credit control measures
Research shows that small businesses are likely to be paid 30 days later than bigger companies. These late payments can have a massive impact on cash flow because small businesses often don’t have the cash reserves to fall back on.
Chasing invoices is never fun, but having a robust credit control process in place ensures that you follow best practices for getting paid, and you get the cash you’ve earned. Credit control also gives you a paper trail should you need to take legal measures with an unpaid invoice. You can find out more about how to create a credit control process here.
Invest in software
Although it might seem counterintuitive to spend money on software when you can do something yourself. In the long run, it can save you time and money by automating processes that might take you hours to manage on your own. This gives you time back to focus on running the business and doing what you do best. Maybe you’re spending hours on bookkeeping when you could be out there working and growing your customer base.
To help you run areas of your business that you don’t have as much experience with, look into software that can help you manage your inventory, research email providers and marketing support, and trial apps that automate time consuming financial admin like Countingup.
Find professional help
When you’re starting a new business, you may feel like you are pinching pennies everywhere. Even if your business is more established, you might be reluctant to spend on support.
When it comes to difficult financial decisions and complex calculations that are part of everyday business, an accountant may prove to be invaluable. An accountant is an expense that can save you time, money and stress in the long term. They do more than just keep your documents organised and send financial information, and can also support you with:
● Start-up management – they can create projections and forecasts to help you plan the initial stages of running a business as well as advising on costs you could save.
● Streamlining your business – accountants can monitor inventory management, identifying areas where you are spending too much. This can help improve the operation you run and make it more efficient.
● Save you money in other places – as well as monitoring your taxes, expenses and stock levels, they will also help with more mundane costs such as utility bills and may help you find cheaper options.
● Help grow your business – accountants can support in creating thorough business plans that set out the milestones you want to achieve.
● Simplify small business tax – and of course, they will help make your self-assessment as a self-employed person much easier to manage by keeping receipts and paperwork for you, as long as you provide them.
Make financial management simple with Countingup
By setting up a Countingup business current account, you can easily manage your financial data in one place. The app comes with free built-in accounting software that automates the time-consuming aspects of bookkeeping and taxes. You can view real-time insights into your business’s finances, including profit and loss statements and tax estimates, and you’ll also be able to create and send invoices in seconds.
Save yourself hours on accounting admin and get back to focus on growing your small business. Find out more here.