Three words: prudent money management. Whether you’re a first-time entrepreneur or a company looking to go public, you already know there’s a lot more to success than keeping the finances in order—though putting together a strong finance team is a good start. Here are 10 strategies to smarten up your business finances and embrace your best economic self for those looking to take it to the next level.
1. Go completely paperless or at the very least “paper light”
When it comes time to complete taxes or work with an auditor, ditching paper saves you time, money, and aggravation. With the rise of cloud-based business tools and remote work, adopting mobile access and paperless (or less-paper) practices has become both easier and more significant.
Of course, the end of the paper has been discussed for decades. But, if only because we won’t be at the office to access those wood-pulp stockpiles, 2020 may be the year we finally cease sifting through reams of paper in quest of bills. We can also expect a significant drop in the use of paper money: Contactless is a “cleaner way to pay” in the age of COVID, according to 82 percent of respondents to a recent Mastercard poll, because it allows for speedier checkouts, more control over physical proximity, and no touch with shared public devices. Cashless means a more complete electronic trail for shops and those managing staff costs.
To summarize the advantages of making a serious effort to reduce paper consumption: Better data access—with electronic documents, locating what you need is as simple as conducting a search. You can make payments faster and avoid paying late penalties. It simplifies record keeping, which is especially useful during tax season. It makes you look good in the eyes of your coworkers. You can get rid of your cumbersome copier. What’s not to appreciate about that?
2. Create and stick to a budget
When it comes to your budget, the saying “If you don’t plan, you plan to fail” is especially true. A budget—fixed if necessary, flexible if possible—serves as a road map for any business as it navigates business decisions and even plots expansion routes.
A budget should at the very least include the money you plan to bring in and the money you expect to spend on costs. With those numbers in hand, you may move on to forecasting, reviewing any discrepancies between anticipated and actual statistics, and making modifications as needed.
Keep in mind that this guide isn’t just for your team. It’s one of the first questions a lender, a business valuation specialist, or an outside investor will ask. You’ll be able to present a clear picture of your company’s financial health if you have a well-constructed budget.
3. Set up automatic bill payments
Manually paying bills consumes time that could be better spent on things like customer acquisition and product development. There’s also the risk of missing deadlines and being penalized for being late. Accept online banking and automate your payments to improve your process. You’ll see an improvement in productivity as well as fewer penalties.
And, as your company expands, you’ll be able to expand to full-fledged accounts payable automation. Better accuracy with reduced processing time, accurate data capture, invoice matching and coding, fast approvals, and lower fraud risk are all benefits of AP automation.
Also, it is absolutely legal to produce your own pay stubs, and the pay stubs generator makes it simpler. Fake pay stubs, on the other hand, are unlawful when used to apply for loans and other things.
4. Put money aside for retirement
While most small-business owners desire to reinvest profits in their businesses, it’s critical to set aside at least 15% of your pretax income for retirement. Consider a tax-advantaged retirement savings plan like a simplified employee pension individual retirement account, or SEP-IRA, for the best outcomes. A SEP can be established by any employer, including self-employed workers. Even if you don’t have any employees, you’ll benefit, and when you do, you’ll be able to offer them this perk.
5. Examine your cash flow
One of the most common reasons for business failure is a lack of funds. You must keep track of your cash inflows and outflows at all times. The simplest approach to achieve this is to establish a cash flow statement that you can use to examine your financial situation and update at least once a month.
While using accounting software makes this statement easier to construct, you can also draft a cash flow statement by hand using data from your balance sheet and income statement. Begin by entering your company’s total cash balance at the start of the period you’ve chosen into a spreadsheet.
This figure should be included in your balance sheet. Then, aggregate all cash inflows and outflows that fit into three categories: operating, investing, and financing. Inflows should be marked as positive, and outflows should be marked as negative. Then, to arrive at a closing balance, sum everything together.
You have positive cash flow if this balance is higher than the opening balance. You have negative cash flow if the closing balance is less than the opening balance. Take a look at our sample statement for Wild Bill’s Dog Trainers and Walkers for an example.
Positive cash flow is usually indicative of a healthy business. However, if a company is new and has spent a lot of money on equipment and property, or if it relies on venture or other investment to grow, it may have negative cash flow. If your cash flow is persistently weak, you may need to make improvements to your workforce, inventory, or unit margins.
6. Keep personal belongings safe
Is your company a one-person operation? Litigation could put your personal assets at risk. You can protect yourself by forming a limited liability business or filing as an S corporation (LLC). The most frequent business structures for startups are a sole proprietorship or partnership, as well as a C corporation. Each has its own set of tax effects.
7. Be presentative
Make your presentation more interesting by including particular business marketing essentials that are on the topmost level of the priority list for a successful business. Only our diverse Finance and Sales Presentation Graphics can help you broaden your knowledge and clarify your objectives. The management PowerPoint (PPT) model can be employed in an open-end manner to discuss customer relationship management, sales management, & service management, all of which are important in establishing a prestigious market position.