10 Tips for Excellent Financial Management
8 minute read
“You have to understand accounting and you have to understand the nuances of accounting. It’s the language of business.” – Warren Buffett
If accounting is the language of business, it is important to master this language. Many small business owners never gain full fluency because they are not financially trained. You can be a great business person with an amazing idea that sells, but if you’re not accounting trained, you might miss out on deadlines or fail to fully optimize your finances.
Common mistakes include missing tax deductions, failing to make payments promptly, or simply not properly advancing your business to bring it to the next level. While these mistakes can cost you greatly, there are ways to stay ahead of your finances.
If you find that your finances are difficult to control, Sleek Finance Manager, Laura Crennan, has provided 10 tips for excellent financial management that will help alleviate the pressure and give you peace of mind as an entrepreneur.
Watch the video below or read on to view the tips!
- Tip 1: Keep your accounting records up-to-date
- Tip 2: Learn to love your financial statements
- Tip 3: Leverage financial management software
- Tip 4: Cash is King
- Tip 5: Separate business from personal expenditure
- Tip 6: Build a budget which reflects your business goals
- Tip 7: Be proactive, not reactive!
- Tip 8: Routinely scrutinize your expenses & pricing
- Tip 9: Prioritize those activities that will bring in the most money
- Tip 10: Don’t be afraid to ask for help
- Wrap up
Tip 1: Keep your accounting records up-to-date
This is the foundation of excellent financial management. With up-to-date records, you’ll always have a handle on how you’re tracking against targets. If you’re off track, you can quickly change tactics.
Updating regularly will also save you a major headache at tax time. Rather than locating all your bills, receipts and invoices at the end of the year, you can update your records each week, or hire a bookkeeper.
The sooner you begin implementing this, the lower the impact on your business.
Tip 2: Learn to love your financial statements
Your financial statements are powerful tools that are essential in managing your business. Investors, bank managers & suppliers are all likely to use your financial statements to understand the health of your business.
They’re investing in you to run your business well, and they’ll expect you to understand your business’ financial statements to ensure you’re financially healthy.
There are 3 financial statements you need to learn to love:
Profit & Loss
This helps you understand the income coming in, the expenses going out, and that all-important gap in between–your profit. Knowing the key components of your profit and loss means you have a better idea of what you need to change to increase your profit.
This is a summary of what your business owns (your assets), what you owe (your liabilities), and your equity at a specific point in time. It’s an important tool that allows you to visualize whether what you own covers what you owe.
When money gets tight, your balance sheet forces you to think about your options and whether you might need some additional funding.
For example, it can help you understand whether the cash you have on hand can cover your loans and bills from suppliers.
Statement of Cash Flows
This shows you how much cash you’ve spent & earned in a period, and the key drivers. As a business owner, you need to be keenly aware of your cash position. Profit is only useful once you’ve converted it into cash from your customers. You can then use it to fuel your business.
If you’re wondering how to write a financial statement, it’s all outlined in this article.
Tip 3: Leverage financial management software
Save yourself precious time by using cloud accounting software and financial analysis tools. You’ll soon find that you’re free to focus on growing your business. Here are some of the benefits:
- They’re incredibly intuitive and easy to use.
- They’re online–your team can all work simultaneously, and you can update your books and view your finances from anywhere.
- They’re automated–they’ll interface directly with your bank and save you from manually transcribing. They can even draft, send, and chase payment of your invoices!
- They make things simple by creating financial statements, turning finances into beautiful charts, and helping you build your first budget.
If you’re interested in looking at a convenient platform for business owners, get in touch with Sleek. Our platform has integration tools to Xero and other accounting software that can provide solutions to all your financial needs in one place.
Tip 4: Cash is King
You must prioritize cash for the health and longevity of your business. Running out of cash is the #1 reason small businesses fail. Here’s how you can manage your cash effectively:
- Keep a cash reserve aside for unexpected expenditures, or a low-income month.
- Keep a business forecast to anticipate any shortfalls, and plan for alternative funding like overdrafts or loans.
- Remember, cash flow is more important than profit – you might have made a huge profit on a sale, but if your customer isn’t due to pay you for 30 days and you need to pay your supplier now, you need to ensure you can make ends meet.
Tip 5: Separate business from personal expenditure
Always open a separate business bank account! You need to know if your business is profitable and cash positive in its own right, among many other benefits. You won’t have that visibility if you’re intermingling your personal and business expenditures.
It will also keep you from complications when it comes to tax–your personal expenditure is not deductible and will need to be manually sifted out if you don’t separate those accounts.
If you want more information on opening a bank account for your business, you can peruse our how-to guide here.
Tip 6: Build a budget which reflects your business goals
Your business should always have a budget in place, which might seem burdensome at first, but you can always start simple and add to it later.
Your budget will help you build a realistic plan for growth, answering questions like, “How many new clients do we need to earn 20% more revenue?” and, “What expenditure do we need to ensure we have capacity to find and service those new clients?”.
If you want to prioritize spending on all your exciting ideas, your budget helps you rationalize what you can and can’t afford, protecting your cash flow. It can also guide you toward a specific profit figure that represents your plan to save for a house, a new car, or a family holiday.
You want to maintain control over performance. Regularly comparing actuals to budget gives you the peace of mind that you’re on track to achieve your goals, or highlights when you aren’t – allowing you the time to course correct.
Do you want to know how to create a business budget? Check out our article on the subject here.
Tip 7: Be proactive, not reactive!
Use forecasts to anticipate and plan for challenges and growth. While a budget sets out your goals, a forecast shows how you’re likely to perform against those goals, based on the latest information. Business can be volatile, and maintaining a live financial forecast keeps you focused on safeguarding the future success of your business.
Forecasting is also useful to set out the longer term plan to build a healthy business, or to visualize various future scenarios, such as how much you can afford to increase employee salaries.
Tip 8: Routinely scrutinize your expenses & pricing
Profit = revenue minus expenses. Naturally, increasing your revenue or decreasing your expenses is going to result in greater profit.
Scrutinize expenses and ensure you are getting the best value for your money, and make sure not to spend on anything that isn’t vital to operating or growing your business.
Pricing can be your most powerful tool to improve profits. You should keep an eye on what your competitors are doing and even seek feedback from your network on your pricing strategy.
Tip 9: Prioritize those activities that will bring in the most money
As a small business owner, you’ve got a million things on your mind, but you must maintain laser focus. A good way to prioritize is to focus on things that will bring in the most cash first.
You can also outsource work! Understanding your finances is important, but outsourcing the maintenance of your accounting records to a bookkeeper can help you focus on finding new leads.
If you want to learn more about optimizing cash flow, take a look at 3 Effective Ways to Save Money as a New Business.
Tip 10: Don’t be afraid to ask for help
When you’re running a business, there is a lot to wrap your head around – you should absolutely ask for help! If you’re struggling to understand your finances, do some further research, keep an eye on Sleek’s YouTube channel for more financial tips and tricks, or ask for help from your finance friends! Don’t neglect to understand your financial health for yourself.
If you simply don’t have any time, speak with an accountant, a finance expert or a trusted resource like Sleek to give you the peace of mind that someone is keeping your accounting records up-to-date and monitoring the financial health of your business.
In order to run a successful business, it is essential to understand your company’s financial health and do everything possible to put beneficial routines in place. This will ensure your company is as successful and as profitable as it can be!
To put it simply, you need to know how to prioritize cash, plan for success, and reach out for help when you need it, whether it’s in the form of outsourcing work, implementing financial software, or simply asking for help.
With these 10 tips and tricks from Sleek Finance Manager, Laura Crennan, we hope you are empowered as an entrepreneur and ready to harness the power of your newfound financial knowledge. Talk to our sales team to get started!