Managing your business finances is an essential part of running your business. While a business can survive for a short time without sales or profits, without cash it will die. Poor cash flow management is one of the most common reasons why businesses fail. Here is my advice to help businesses manage their finances successfully:
- Create an annual business plan with a budget and a forecast so that you can keep all your finances on track and keep aware of all the money coming in, and out, of your business account. This plan should contain an outline of changes that you want to make to your business, potential changes to your market and your objectives for the year ahead. You should also include any issues or operational changes that may occur along with details of investment in the business.
- Make sure you’re charging enough for the services you’re offering. I always tell business owners that I see not to charge too little. Keep an eye on your competitors so that you’re not under-pricing yourself. It’s surprising how many businesses can increase prices by up to 5% and clients don’t complain.
- Create a budget and ensure that you monitor it regularly. To create this budget ask yourself what the projected sales are for the period, what the direct costs of sales are (i.e. costs of materials, components or subcontractors) and what the fixed costs and overheads are. Fixed costs and overheads include costs of premises, staff, utilities, printing, vehicle expense, equipment costs, advertising and promotion and legal and professional costs such as insurance. Make sure that you monitor this budget on a regular basis – monthly would be best. Look at the variants and if there’s something that stands out ask why. Monitoring tools like budgets are absolutely essential but you need to treat them as a call to action. If your phone bill is way off kilter, use the forecast to flag this and investigate the reasons why and take any necessary corrective actions.
- Keep a very close eye on who owes you money – so many businesses don’t keep track of monies owed so make sure that you invoice clients correctly and check that you’re being paid within the terms of your contract or agreement with them.
- Avoid nasty surprises – make sure that you know when bills are due to arrive so that you’ve got the money in the bank to pay them.
- Choose an accountant that you can trust. Accountants can offer your business a range of services from basic bookkeeping to specialist business advice. They can save you time and help to make your business more profitable. You may employ one simply to prepare financial statements for your end-of-year tax return or you may need to rely on them for other added-value services, such as auditing. By law, accounts must be audited each year unless the company is exempt.
The Business Link website is home to a wealth of advice on managing your business finances. For more information visit www.businesslink.gov.uk/finance
Business Link is the information, advice and support service for all businesses, funded by the Government. Business Link services are available online at the Business Link website and through a helpline number, 0845 600 9 006.John Grange is a Business Link adviser based in the South East of England.
Tags: accountancy , annual business plan , business advice , business management , cash flow management , management advice