When starting a business, your mind will mostly be filled with ideas for your product and service, how you’ll meet a big need for your customers/clients, and how you’ll make a ton of money as your business grows. However, when you start the business you’ll observe that generating ideas and executing a plan to two different issues. You’ll also observe that managing the business is much more challenging than your had expected. Money problems are one of the biggest challenges that entrepreneurs face in managing their businesses.
You’ll have to manage costs and revenue in order to ensure decent profit margins. You’ll need to manage payroll to ensure that you are not understaffed or overstaffed. You’ll need to manage inventory to ensure that you don’t have too little or too much stock. You’ll also need to manage the business operations to ensure that your products and services are providing value to your customers. This article provides insight into four practical tips for managing your business finances.
- Know how to read financial statements
The first (and probably most important tip) that can help you be in charge of your business finances is to upgrade your knowledge of business finances. You should start by learning how to read and understand financial statements. At the very least, you should know how to make, read, and interpret the balance sheet, cash flow analysis and the income statement. Understanding how to measure, record, and understand business finances could have a material effect on your ability to run your business sustainably and profitably.
- Separate your personal finances from business finances
Many business people start their business with personal funds; hence, it is often hard to know where personal finance ends and where business finance begins. However, mixing your personal finance with your business finance will make it hard for you to measure loss/profits, you won’t have proper accounts that might satisfy potential investors, business partners or creditors, and you might end up messing up your credit report and credit score. You can separate personal and business finance by getting a business credit card where you charge business-related expenses.
- Measure and monitor the ratio between marketing and performance
In the course of running business, you’ll spend some money on marketing, ads, and promotions. The old school philosophy in the advertising industry is that only half of your expenses will generate results – but you might not know which half will be profitable and which half will be wasted. However, if you want to manage your business finances effectively, you’ll need to find a way to measure how much income you are generating with every marketing dollar. You need to know the cost of acquiring customers and the lifetime value of the customer. You should also track ads and keep logs of sales calls in order to know the marketing efforts that are yielding results.
- Establish relationships for business financing
Even with the best financial analysis, modeling, and forecasting, your business will experience occasional cash crunches when you’ll need to borrow money in order to stay in business or take advantage of an opportunity. You need to familiarize yourself with the different types of credit facilities available to businesses so that you can make the right borrowing decisions per time. For instance, a line of credit is different from a business credit card. More so, a regular term loan is different from equipment financing. More importantly, you’ll need to have established relationships with potential lenders so that you are not in a desperate haste whenever you need some funding for your business.
