A business cannot run without money. That is why before you opened your company, you had to gather finances and purchase a few office items. Interestingly, only 2 out of 10 new businesses make it past the first year. What makes these ventures fail? The most common reason is poor financial management. These firms run into cash flow problems and eventually close down.
To avoid failure and make sure that your business always has the cash to operate, use the following tips:
1. Keep Track of the Finances
The first step to financial freedom is monitoring. You should know the amount that your business brings in every day. If the business is still small and you only have one branch, you should be there during normal operation hours. That way, you can easily monitor the cash flows. Keeping track of your finances doesn’t just involve the cash at hand. You should also know how much money was deposited in the business account on that day. As your business grows, or if it is already substantial, consider handling your company’s money through a financial services industry. That way, your cash flow will be documented correctly and require less work from you.
2. Monitor Your Debtors
If you operate your business for a certain period, you build a certain level of trust with your returning customers. Since you trust these clients, you can allow them to purchase goods on credit. Make sure that you write down the name of the debtor and the expected date of repayment. Keep the book with you at all times and always remind the debtor until they pay you back. Bad debts can be bad for your business since they deprive you of cash. If possible, avoid giving goods on credit.
3. Know Your Expenses
It might look like a simple task, but most businesses don’t know how much they spend daily. Some business owners simply assume this figure because they think it isn’t that big. You’d be surprised to learn just how much cash goes out of your business every day. Those ‘tiny’ miscellaneous expenses can add up to a huge figure. You should physically monitor your business regularly and have an estimate of how much is spent. Then, make sure that your daily sales targets are always above this figure.
4. Update and Safeguard Your Financial Records
Whether you’re recording your transactions in physical ledgers or on accounting software, make sure that you keep those records safe. Use a password for the software so that the records are not accessed by unauthorized personnel. You should also update the records daily. If a customer has paid their debt, record it. If you’ve bought new stock, record it. You need to record those transactions so that they can be later analyzed for decision-making purposes. This technique is also called r2r, or record-to-report.
5. Pay Your Taxes on Time
Paying your taxes on time is a financial management technique because it helps you avoid unwanted expenses. If you keep accurate and updated records of your business transactions, it should be easy to file your taxes on time. The IRS is very strict about taxes. If you delay filing your returns, you can be fined heavily. Such expenses could hurt your business cash flow.
6. Choose Your Funding Sources Wisely
You can use credit to leverage your business and increase your earnings. Despite being good for your venture, credit can cripple your firm. If you go for a loan that charges a high-interest rate, you reduce your expected earnings. Therefore, choose your funding sources wisely because they could mean the difference between success and failure.
Use the above strategies to transform the way your company handles finances. You will reduce your running costs and improve your cash flows. If you do so, your business will run smoothly without any hindrances. Finally, you have to keep practicing the above strategies until they become a habit. Some entrepreneurs implement new financial management techniques, only to revert to the old ways after a while.