Good financial management is crucial to the long-term performance and survival of all businesses, large and small. To successfully manage business finances, you need a harmonious blend of skilful forecasting and careful planning. Responsible financial management will help your business stay stable and healthy in the long run. Follow these five tips on the road to sound financial management.
1. Always keep something in reserve
Even if you are extremely good at forecasting the need for cash and the likelihood of future income you should avoid running your finances too tightly. Uncertainty and risk is endemic to all business environments, and you need to be prepared for events that you did not expect. Instead of keeping the minimum or no cash in reserve, think of a healthy level that can take care of unexpected demands should they surface.
2. Manage your invoicing processes
Though no business makes a habit of never billing its customers, it is not uncommon for transactions to slip through the net. Automatic invoicing such as that provided at https://invoicehome.com/ ensures that every transaction is covered and will help you to track which invoices have been paid. Though most businesses usually invoice on time, collections are often managed less reliably, an electronic invoicing system will ensure you don’t lose any money.
3. Watch forex rates
Many businesses earn some of their profits from abroad – or buy their inputs from foreign companies. The rates at which currencies trade can change suddenly and unexpectedly, which can result in serious losses if the direction of the change goes against you. Responsible financial managers purchase currency hedges that act as an insurance policy to help them to recoup some of the differences.
4. Buy insurance where appropriate
Your financial planning should make allowance for unexpected events, but some risks are too large to adequately prepare for on your own. This is where an insurer steps in, allowing you to insure against a potential problem that is very costly, but not very likely to happen. Examples include public liability insurance, key person insurance and property and building content insurance. For a small monthly or annual fee you can make sure an unlikely but damaging event won’t seriously harm your business.
5. Regularly review spending
It is common for businesses to operate in a way that allows several members of staff to spend company money. This can make keeping spending to a minimum tricky, and businesses commonly overspend due to a lack of monitoring. When managing your business finances, you should regularly review spending and reduce unnecessary expenditures. A reporting regime will make this easier, and reducing the amount of people with the ability to spend to a bare minimum will also help.
Good financial management can substantially affect the bottom line of your business. In fact, poor financial management can lead to business failure as unexpected risks materialise and out of control spending erodes profits. Therefore it is crucial a real effort is made to carefully oversee the finances of a business.