Mastering Financial Management: 6 Essential Tips (According to the Experts)

Is your business up and running? Most entrepreneurs think their job ends once the company is operational, but in reality, that’s where the journey begins.

As a business owner, you must manage routine operations, run marketing campaigns, and recruit a team of experts.

Above all, you must manage finances smartly to avoid drowning the business in losses. It might seem like a challenging task, but you can ace it with a few financial management strategies.

A significant part of financial management is allocating money to the right resources. Instead of investing 80% of your budget in marketing, think about research and development, recruitment, and automation.

After all, correct allocation is crucial to running operations smoothly. Likewise, entrepreneurs must have a solid understanding of financial reporting. You must prepare financial statements yearly from the balance sheet, income statement, and cash flow.

Here Are Six Prime Tips For Better Business Financial Management

Besides unfolding the company’s profit potential, it captivates shareholders, bringing more investors on board. Effective financial management will stabilize your company while improving its profit potential.

However, let us show you the ropes if you are new to this. Here, we have highlighted six tips for better business financial management.

Prioritize Financial Planning

Do you have a business financial plan? Most companies only have a business plan that gives an overview of financials. A comprehensive business plan will include budgeting, risk management, investments, and tax planning.

Therefore, analyze your business performance to set the right financial goals and prepare an accurate plan. To keep your business in good financial health, you can opt to use a corporate credit card Singapore, where you can pre-assign funds to avoid overspending.

You can also track your expenses in real time using this credit card.  But if you don’t know much about finance, bring an expert on board or focus on your financial literacy.

For that, you can either take a few finance-related courses or pursue higher education. You should look for online MBA finance programs to develop a better understanding of the subject matter.

The online program will offer flexibility, letting you learn at your own pace. At the same time, you can carry on with your company’s financial management.

Finance Your Business

Businesses often find themselves in a liquidity crunch. Despite making profits all year long, they don’t have sufficient cash in the industry. Instead of letting these halt business operations, you must explore financing options.

First, analyze the financial performance for the past two years to comprehend your repayment capability. If expenses have enough room to cover interest, feel free to take a loan. If not, look for other options.

Here are two primary financing ways.

• Debt Funding: acquiring a loan is known as debt financing for a business. You will gain access to capital quickly through merchant advances or working capital financing. However, this money comes at a small cost – interest.

With every repayment, you have to pay interest on the loan amount. And remember, you must repay the loan under any circumstances, or else the company will run into default.

• Equity Funding: Entrepreneurs who don’t wish to rely on debt can raise funds through equity financing.What is equity financing?

Unlike debt funding, it doesn’t require you to repay the money. Instead, you sell shares in your company in exchange for capital. That means you would sell a portion of your company’s ownership and control to a third party.

Optimize the Payroll Process

Truthfully, a few operational tasks, such as payroll, consume many resources, time, and effort. So, why not streamline the entire payroll process?

It doesn’t mean you have to create a separate team or hire more people; instead, choose the right payroll software. It will ensure salaries are deposited into your employees’ bank accounts without any delays.

Believe it or not, a direct deposit can go a long way in managing cash flow. It will ensure cash flows out of business simultaneously, eliminating the chances of employees depositing their cheques at different times.

After all, those outstanding cheques disrupt cash flows and create cash management problems in the business.

Remember, most payroll software solutions are free of cost; thus, you won’t be incurring an additional expense by optimizing this process.

Restructure Payment Terms

Another step in improving financial management is managing your small business’s cash flow. You must restructure the payment terms, especially if you offer credit sales.

Extending credit to customers effectively captivates more business and builds trust, but it also impacts cash flow.

As you offer the buy now pay later option, it should have solid payment terms backing it up to avoid delays. So, how can you encourage customers to pay on time? For starters, you can charge interest on late payments.

Likewise, you can offer discounts on early payments to incentivize customers to pay in a timely manner. Above all, choose your clients wisely. You must be selective with who you work, and credit check all new prospects to avoid bad debts and fraud.

Prepare Financial Forecasts

Financial documents play a crucial role in every business, but sometimes, they aren’t sufficient. When it comes to finding investors or acquiring a loan, lenders ask for financial forecasts.

It demonstrates where your business will stand in the next five years and whether you have the potential to earn profits. Hence, make sure your forecasts are always ready.

Besides attracting investors, it can help identify potential issues before they arise. In turn, you can make more informed decisions about the business’s direction.

If you recognize revenues decreasing yearly due to rising depreciation expenses, revalue the asset now. Otherwise, you can change the depreciation treatment to reduce its consequences for the years to come.

Build Business Credit

As your company grows, you should explore your investment options. Some companies opt for real estate, whereas others acquire additional insurance policies.

While these initiatives might seem profitable, getting approval can be challenging if you have a poor credit score. Therefore, every business must build business credit to streamline financial management and keep the business growing.

To improve your credit score, begin by paying off your debt. Likewise, don’t let your business credit cards run a balance for more than three weeks and pay off immediately.

At the same time, you should avoid taking loans with high interest rates. Once lenders determine your good credit track record, they will adjust your credit score automatically.

Final Thoughts

Managing business finances can be challenging, even in the best times. However, you can stay on top of all money-related matters with a measured and strategic approach.

That means keeping your funding options open by maintaining a good credit score. Likewise, automate repetitive tasks so accountants can focus on effective financial management. Lastly, keep track of cash flow to avoid any liquidity problems.

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