If you have a business, no matter whether it is big or small, you need to manage your financial administration properly to run the business successfully. If not managed properly, your business may fail even if it has high potential profitability. Every year, many new businesses wrap up due to poor financial management.
If you are planning to start a new business shortly, then you have to keep in mind that you may have to make crucial financial decisions from the very beginning. To make those decisions precisely, you need a better financial management plan. Here are given some useful tips to consider for managing the finances for your business.
What Are The Small Business Accounting Basics That You Need To Follow?
Even if your business is small, you have to do the basic financial tasks like tax filing, bookkeeping and accounting. They are indeed time-consuming and sometimes appear too much frustrating, but your know their importance in maintaining your business safety and legal compliance. Whether you will use an accountant or accounting software, that is completely your choice, but there is some general advice which a financial advisor Perth will give are as follows:
- Open a separate business current account: If your business is registered as a company, then you must have a business current account but it is not mandatory for a sole trader. However, you should still go for a current account so that all your financial transactions are kept in a definite order.
- Choose cloud accounting software: Using cloud accounting software has several advantages over keeping an accountant. It will save more time and yield more accuracy. Cloud accounting software would be very suitable if you do not want to bear the costs of keeping a professional. Xero, Quickbooks are examples of cloud bookkeeping software that are widely used now.
- Hire an accountant: As your business grows, your accounting job will become more complicated, and it will be difficult for you to look over all the business activities. So, it is better to hire a Certified Public Accountant (CPA) for your business.
Besides these tasks, you have to keep in mind all the taxes that you have to pay. These include corporation tax, self-assessment income tax, VAT and PAYE, subject to different terms and conditions.
Why Is Cash Flow Management Important For Small Business?
Cash flow is the most important aspect for a business, be it small or big, to survive in the long run. Even if your business is profitably successful but running short in cash, your business may fail within few days. The toughest situation regarding cash flow in business occurs at the beginning because, at that time, you will have to bear the costs to set up the whole thing, and there may be no or very few customers. So, you should always have some source of money like savings or an overdraft.
Your cash flow can fluctuate if you have a seasonal business, so you should take care of your cash flow with the most accuracy. Here given are some tips to manage the cash flow properly.
- Create a cash flow statement: Want to know the best possible method of cash flow management? Then creating a cash flow statement is what you should go for. Financial documents will keep records of your monthly cash flow and will also forecast annual cash flow. Nowadays, you can create cash flow statements quite easily with accounting software.
- Think about your payment terms: There are different payment terms from which you have to choose the one that is appropriate for your business. Restaurants get paid when the customer finishes the meal, while any other business might get the payment later.
- Set expectations but stick to conditions: If you find a customer to have excellent credit records, you can happily supply goods or services to him/her, but make sure that that person follows the rules and regulations set by your company. You should require written consent of agreement to your terms and conditions.
What Are The Financial Documents Should A Small Business Have?
As a business owner, you need to usually show four financial and forecasting documents, which are as follows.
- Balance sheet: The balance sheet of a business is the document that shows your business’s financial condition at any point in time. There are generally three parts included in a balance sheet. The first part is ‘Assets’, which includes building, equipment or vehicles owned by the business. The second part is ‘Liabilities’, which shows the money that a business generally owns like debts and loans. The third part is ‘Equity’ which is nothing but the amount invested by the owners.
- Profit and loss statement: The summary of revenues and expenses over a year give the profit and loss statement, from which you can get calculate net profit and loss.
- Cash flow statement: A cash flow statement shows a flow of cash in your business that includes the inflow of revenues and outflow of expenses.
- Breakeven analysis: This analysis is used to see how many units you have to sell or how much revenue you have to get to cover up your costs.
How Can You Manage Your Small Business Debts More Effectively?
Debts are useful tools to start with a new business venture. But, debts become a burden if you cannot pay them within proper time. Such a thing may happen because of the lack of revenue your business has generated. So, to effectively manage your debts, you can follow these steps:
- A rainy day fund: If some money remains left at the end of the month, you can put that amount in your savings bank account. This will not only lower your dependence on the business account but will also help you to cover costs in situations like staff sickness or breakdown of business vehicles.
- Cut unnecessary expenses: While running a business, you should always keep in mind about clearance of debts, and for that, you should reduce your costs by eliminating some unnecessary expenses. It is not mandatory to call a cleaning service every week. You can also reduce the expenses on office supplies and meet a client in the meeting room, rather than meeting in a café.
- Increase revenue: There are several simple ways to increase your business revenue. You may offer payment discounts to your customers that will allow some cash flow injection.
Other methods include refinancing, negotiation with suppliers, increasing credit scores and fundraising campaign to pay debts.
What Are The Different Options For Small Business Financing Available?
There are two methods of small business financing. One is, equity financing and another is debt financing. Equity financing is the most commonly used method where an investor makes the money available in exchange for a share in the business ownership. Benefits include reduction of risk, increased cash flow and long-term planning while there may arise conflict and control over business may get lost. In the case of debt financing, the lender sets a charge on money that the business borrows. It’s tax-deductible and also can be predicted. But the security is less, and cash flow will not be improved.
For financial planning and management for your business, you may find several available financial planners in Perth. However, reliable accounting services from Palladium will be the best thing to opt for.