10 Ways to Stay on Top of Your Business Finances

Understanding the state of your finances is a crucial aspect of running a business, no matter whether it’s big or small. Businessowners need to make sure that the money keeps flowing. Besides, it’s important to be able to prepare for any debts, emergency, or unforeseen events.

Ignoring financial management can lead to severe consequences, including supply-chain delays or interruptions caused by cash flow problems. Here are ten tips that will help you stay on top of your finances.

1. Plan Effectively

First of all, you need a clear plan with predefined goals. You won’t be able to understand where your business is moving if you have no idea what your financial goals are. That’s why you must have a business plan.

Approach this process in a meaningful way, understanding your current situation and taking into account any issues that may prevent you from accomplishing your goals. Make sure that your business plan includes your budget, expected profit and loss, and estimated cash flow.

When planning, you should be ambitious and realistic at the same time. When you’re starting a small business and you’re not restrained by employment, you can make any financial decisions you want. Of course, not all of them will be good so you should be ready to experiment, learning from your experience.

2. Create Cash Flow Charts

There are many kinds of accounting software you can use to create charts of outflows (payable accounts) and inflows (sales of products or services). You can check these charts over different periods of time to see how money flows into your organization and out of it.

Obviously, your goal is to make inflows exceed outflows so that you can make a profit. However, the most important thing is how big the difference is. Few businesses manage to keep their profits consistent day after day, so this parameter will change over time.

Some months will be better than others, and these charts will help you see how your cash flow changes, allowing you to detect patterns in inflows and outflows. This way, it will be easier for you to understand what causes such fluctuations so that you can restructure some areas of your business and avoid getting a small or negative difference.

3. Have an Effective Billing Strategy

Many businesses have to deal with clients that are always late on their payments and invoices. Having too much money stuck in unpaid invoices creates numerous cash flow problems and can even lead to a complete failure of your business. If you want to manage finances effectively, you should make sure that your organization operates successfully on a daily basis.

If you’re experiencing problems with collecting from certain clients, you may try some creative billing approaches. For example, you can change the payment terms so that your customer will get a 2% discount off the overall bill if they pay early. Or, if the customer fails to pay within 10 days, they will be charged a late fee.

4. Manage Your Debt

Most businesses have to deal with debts, such as mortgage payments, loans for equipment, or initial funding. However, borrowing only makes sense if the cost of the money borrowed is lower than the income generated by your organization thanks to that money.

To be successful, you’ll need manage your borrowing costs, especially when it comes to credit cards or loans with variable rates. Assess your debts regularly: check the repayment costs, check whether any circumstances have changed, and decide whether you need to reduce or increase your debt funding. You should also talk to your accountant to check out other ways to borrow. Sometimes, choosing a different lender can help you save a lot of money.

5. Invest in Development

It’s very important to invest in growth. When you prioritize growth, you can set a healthy direction for your business finances and the future of your company. Small businesses must grow, attract the best talent, and innovate. Besides, any company can benefit from improving its level of service because customers will appreciate it.

Employees will also be happy if you invest in their careers and the company. Investing in growth in these ways allows you to create more value for your organization.

6. Regulate Cash Flow

The best solution is to manage your finances in a way so that you always have enough cash on hand for three to six months of expenses. If you do this, even a couple of bad months won’t have a major impact on your company.

Here are a few simple tips that will help you improve the situation significantly:

Reduce your invoicing payment terms so that your customer will pay faster.
Talk to your suppliers and change payment dates so that you can align outflows and inflows.
Find a good source of business credit so that you can borrow short-term money if you need it.
Keep in mind that the inventory that is sitting in your warehouse or office costs you revenue and space.

7. Improve Your Reporting Process

Traditional bookkeeping is difficult but there are many kinds of software that allow you to avoid most tedious tasks, making it easier for you to maintain accurate records. Identify the key performance indicators (KPIs) for your organization and monitor them using effective reporting tools. Small businesses will likely benefit from monthly or even daily reporting. This approach is called granular reporting, and it allows small businesses to effectively manage risks and cash flow.

You should also systematize the reporting process. The best way to do it is to build a good finance department within your organization or to outsource a financial authority. Your financial records must enable you to see a complete picture of your company’s current state, past, and estimated financial health.

8. Remember Internal Payments

Internal payments include rent, energy bills, payment of staff, subscriptions and office maintenance. These internal payments are crucial—and you should make sure to pay yourself as well as everyone else when managing your finances.

Many small businessowners tend to forget about their own role in the organization so they forget that they should also be compensated. Usually, they just focus on paying everyone else and keeping their business in good shape. However, if something goes not as planned, you don’t want to be the only one who didn’t get paid. It’s important to remember that you’re an integral part of your organization and therefore you should compensate yourself as well.

9. Review Your Expenses

You must be able to check reports on profit and loss, cash flow reports, and balance sheet reports. Various programs can help you create such reports quickly. In addition, you should check depreciation reports, accounts payable, and accounts receivable reports. You should also monitor your payroll, even if part of it is outsourced. This task is often especially challenging for growing companies.

Review your expenses with your financial adviser or accountant and make it a habit. Obviously, you should also keep your professional and private finances separate. One way to do this is with a business credit card that you use for your business expenses, separate from any personal credit cards.

10. Measure Expenditures and ROI

Measuring your return on investment and expenditures will help you understand what investments are actually effective. Make sure to spend money effectively and identify investments that are not worth continuing. You should always focus on the ROI of each of your expenditures so that you can see how your investments are paying off. If you see that it isn’t useful, cut it back and invest more money in other initiatives that actually work for your business.

Managing business finances properly is not just a good thing to do but a necessity. Businesses need to track their cash flow, expenses, and revenue to be able to maximize profits, expand, and hire more employees. Use these tips to help you stay on top of your business finances.

Gregory Chapman is passionate about researching new technologies in mobile, web and WordPress. He also works on Best Writers Online, writing service reviews. Gregory is in love with stories and facts, so he always tries to get the best of both worlds.