Most people would agree that a business needs to be able to control its finances if it is to succeed. This is easier said than done, however, and it’s the kind of thing that you will need to approach from a number of angles at once if you want to do it right. But when you do, you are going to find that the way the business is working, and its chances of ongoing success, are going to be quite profound.
In this post, we are going to take a look at how you might be able to gain a tighter control of your business’ finances, so that you can hope to succeed with the business in general. The following are all really useful approaches that you might want to take.
Keep It Separate
One of the most basic things you need to do here is to ensure that you are keeping your business finances completely separate from your personal finances. That is sometimes harder than you might think to achieve, but it is vital if you want to make sure that you are going to have a good chance of controlling your business finances. This is a very simple but overlooked step on the whole.
When you mix the two, it makes it harder to track expenses, as well as complicating tax filing and muddying your understanding of profitability, amongst other problems. Dedicated accounts and credit cards give you clearer visibility into what is actually happening in your business - and you need that visibility if you are going to be able to control things more effectively.
Use The Right Accounting Tools
There is a lot to be said for using tools to help with accounting and bookkeeping. But you do need to make sure that you are using the right tools. There are a lot of choices out there, and it’s vital that you are opting for those which really help you out. Manual spreadsheets, it has to be said, only go so far. Accounting software like Xero however can save a lot of time as well as reduce a lot of human error. In this sense, automation can be a great way to reconcile bank transactions, generate financial reports, and forecast cash flow without lots of hours of number crunching.
So if you are not currently making use of these kinds of tools, you might want to consider it. It’s the kind of thing that can really help a lot and it’s going to mean that you have a much tighter control of your business’ finances in general.
Track Cash Flow Tightly
You need to make sure you are keeping up with the cash flow in your business, because revenue does not always equal cash on hand. Make sure you keep a close eye on incoming payments, outgoing expenses, and how they line up across the month. A cash flow statement that you update weekly is a really powerful tool, and one that will help you to spot shortfalls before they become crises. The right kind of cash flow is going to help ensure financial health, so this is something that you should make sure you are aware of for sure. It’s simple but it really does help.
Limit Employee Spending
While there are lots of occasions and reasons that you might need to allow your employees to spend money, it’s usually a good idea to limit how much they are able to spend on their own. That is something that is going to be really useful to help keep spending under control, which is itself vital for keeping the business running as smoothly as possible.
There are many checks and controls you can make use of to enable this. You might want to consider checking out the differences between P-Card Vs. Corporate Card Vs. Business Credit Card. With a P-Card, for instance, employees can spend money for the business away from the workplace, but in a much more limited and controlled way than with a business credit card, which you would probably keep aside for managers. So this is just one example of a simple way to limit what employees can spend.
Budget Realistically
A common error is when people budget their business in an overly-hopeful way. All that happens here is you end up being disappointed, and it means you are probably going to have to think about what you can do to work on this. Ultimately, you just need to try and budget as realistically as you can. If you can do that, you should find that you are going to be a lot more likely to keep things in perspective. Review it monthly to see where you are overspending and where you can cut back, and make sure you are never guessing. Accuracy is the watchword here.
Control Costs Without Cutting Corners
You obviously need to make sure that you are keeping costs down as much as you can at all times. But at the same time, you should take care not to cut corners so that your product ends up poor and your employees are worse off. This is a fine balance to strike, but it’s one that you really need to make sure you are thinking about at all times. This is all about spending smarter: negotiate with vendors, review subscriptions regularly, and look for areas of waste to improve upon. These can add up so they really do make a difference.
Monitor Your Key Metrics
Figure out what your most important metrics are, and then make sure that you are monitoring them. Keep a tab on your gross margin, net profit margin, accounts receivable days, and debt-to-equity ratio. This is going to help you to ensure that you have a much better picture of your performance, and it really helps you a lot when it comes to gaining tighter control.
