Business owners might have a great business idea, or they might be able to come up with a one-of-a-kind unique selling proposition, but it takes more than that to run a business. If they aren’t able to handle money well, then it’s all moot. After all, a business involves dealing with numbers, large amounts of it, to make sure that the process continues and that the business thrives.
Below are some points to think about when it comes to handling your business’ finances.
Track Your Cash Flow
The common image many people have about business is money constantly flowing in and out. And there is some truth to that. A business purchases raw materials or stock items and then sells these at a profit. A simple money-out, money-in activity is usually called cash flow. And tracking this cash flow can help you better manage your finances. In its simplest definition, cash flow is how much money your business is moving at a certain time.
Negative cash flow is when your business moves money outwards more than it does inwards- which essentially means spending more than you earn. It often happens when a business is still finding its footing.
Positive cash flow means your business has more money coming in than out. You earn more profit than you spend on basic expenses. It’s the ideal cash flow state to be in, as this means being able to profit.
And why does tracking these numbers matter? Because then you would have a better understanding of where your business stands. Is it going to make a profit in this quarter, being able to pay all the necessary expenses and leave some breathing space for your business? Or is your business in the red, requiring you to make cost-cutting measures? It’s in fully understanding where your business stands that you will be able to make ends meet.
Invest in Improving Your Operations, even if It Means Loans
Even businesses can live “hand to mouth,” barely making a profit. For a business to go past this survival stage, there have to be changes to trigger growth. Investing in making operations more efficient and productive is one way to start growing your company. Now, you might think that it’s a chicken-and-egg situation, as it is difficult to grow your company without further investment.
In this situation, taking out a business loan might be beneficial as you’ll be using it towards productivity expenses. This means you’ll be able to generate more income, and the investment will pay for itself, eventually generating enough overhead for your business to report a profit. While a loan is definitely risky, if it means improving your workflow, it might just be worth it.
Understand Your Taxes
Taxes are inevitable, or so the popular saying goes. But in the case of businesses, taxes truly are inevitable. Your business will be audited for tax, typically by a certified public accountant, to ensure all your fiscal requirements are met. However, many business owners fail to realize that the government is actually putting in mandates that help business owners.
Look over your area’s regulations concerning taxation, understand it thoroughly, for it will help you out. Especially for those still at the genesis of their business’s history, filing assets and capital correctly can help mitigate gargantuan taxes. A business might be able to claim capital allowance on assets declared early on or even be liable for a government tax relief. Having a clear understanding of tax regulations can help you avoid overpaying for taxes.
Credit Check Who You Work With
There’s a notion that you should work with everyone, as it expands your network and circle. However, in the business industry, this advice doesn’t hold water all that well, especially when selling larger scale products or services that require long-term contracts paid over a few weeks or months.
The last thing you want is to spend all your business’ energy to fill an order, using company manpower, time, and resources to accomplish it, only to be embroiled in a legal battle with a customer who refuses to pay. You’ll work on a negative as not only did you lose money, but you will have to spend more to acquire what you rightfully deserve in the first place. Credit-checking potential contracts might sound like a rather tough move, but it guarantees that your business will be compensated. It’s a preventive measure that can help significantly.
Managing business finance is never easy. But it’s a task best taken seriously and with your best effort. By making sure your business finance is out of the way, you can focus on expanding and improving your services.