Being a clever, astute and successful business person isn’t just about having a great business mind, like spotting a gap in the market, seeing a commercially viable idea, or seeking out a profitable opportunity before others do. It’s also about good financial management – quite simply, managing your money well. Not doing so can end a business well before its first year has even got started.
With all this is mind, here are five effective ways to manage your business finances better this year.
Keep on top of your taxes
When thinking about ways to better manage your business finances, a key place to start is keeping on top all your legal paperwork, and this includes your taxes. This isn’t just about making sure you’re on top of completing yearly payments, and doing them correctly and on time, to avoid tax investigations and fines. It’s also about being fully aware of tax rebates, as you may be entitled to tax refunds and reductions, depending on your business.
Construction is one example of an industry where workers can claim back a percentage of their taxes each year. Companies like Brian Alfred can help manage this for them, giving, for instance, self-employed builders, one less thing to worry about when managing their finances. Science and technology projects is another example where tax relief claims can be made. So it’s worth keeping in mind if you’re in the industry and your company has led some innovative research and development projects.
Create a cash flow budget
A common cause of businesses failing is because of cash flow issues. Data from research firm CB Insights in September 2017 stated that 29 per cent of startups fail because they ran out of cash. Being on top of cash flow can help prevent this. Key areas of cash flow, which companies should be aware of, range from sales revenue and financial forecasts, to costs of goods and operating expenses.
Having a cash flow budget can help to manage these areas and make sure there’s money available to comfortably cover, and continue to cover, things like expenses and market revenues. It’s important to keep your budget up to date and make sure it reflects changes as and when they happen, such as in your business plans, development and growth.
It can also help you know when you should say no to certain projects. For instance, you might have a big project opportunity, but it will result in you not being paid for several months, with money first needing to be spent on materials and paying suppliers. Creating a budget could make you realise that taking on this particular project might leave you in a difficult position.
Track incomings and outgoings
Keeping track of all your business incomings and outgoings is another way to help manage your company finances better. Your incomings include things like client payments and contracted work, as well as small one-off jobs. Different types of work can mean payments will come at different times, which can be easy to lose track of, especially during busy periods. This can also make it difficult to know when to chase clients.
Outgoings include bills, payments to suppliers, and monthly instalments for loans or overdrafts. Keeping track of these helps to manage and keep on top of monthly payment deadlines. Setting up a payable schedule can help with this. This can list how much you owe, to whom, for what and when, and if payments are a one off or on-going. It’s important to regularly review your outgoings to see if they can be collated to manage them better, or even reduced.
Record all expenses
This isn’t just about knowing how much money is being spent on expenses and on what, each week or month. Recording your expenses can help you see patterns of where spending is higher or lower to better control your finances. This way you can look for ways to see if you can reduce them and cut back.
Expenses could range from travelling costs to meet up with clients, to materials and printing costs for your marketing. You could then look at ways to reduce these costs without, for example, affecting your client relationships or compromising on quality.
This could include looking at other ways to communicate with clients, so that progress on projects can still be visually seen. For instance, holding video conference calls, or reducing face-to-face meetings from monthly to quarterly.
Assess money for emergencies
Another important part of good money management in business is regularly assessing how much money you have in case of an emergency. This could involve a fault with product production that results in you having to buy new materials, or you having to hire emergency freelancers to help your team with an urgent project due to staff being off sick.
Or it could involve needing money to put a business continuity plan into action, such as to buy replacement equipment or help pay for renting a contingency location.
Emergencies aside, managing a good cash surplus means you can also save up a good pot of money to put towards developing your company over time. This could include upgrading machinery, or paying for a refurbishment or a business expansion. Alternatively, you could use it to help pay off debts quicker or just maintain a healthy working capital.
Either way, such decisions in this area of money management could help strengthen the financial stability of your business this year, and years down the line.