Financial fitness is an important part of keeping your business on the path to success but achieving this can be difficult. Here is a guide to establishing financial fitness.
Managing your business finances can be complicated. Companies contend with factors that are often outside of their control. These include being paid by third-parties, unexpected costs and wider economic circumstances.
These issues can make staying financially fit difficult, and are often why bigger companies will turn to accountants or other specialists to keep their finances in check. However, smaller firms can rarely budget for this cost, especially at the beginning.
A healthy financial position is one of the most important things about running a business, and something that will stand you in good stead as your company grows, takes on more staff, and earns more revenue.
So how can you make sure your business is financially fit?
Get the right resources
For most companies, getting an accountant is a sensible business decision. Not only does it mean that you can use your time more effectively, but it also reduces the amount of stress and potential errors that could be made in the process. However, until this is a viable option for your firm, you will need to understand the federal and state demands of what financial documents you should keep.
Having the right resources, including a good filing system, will be crucial for this. Set aside time in your diary at regular intervals to get on top of your invoices, expenses and any other business accounts that are needed.
Find the right accounting software for you. It's important that you understand the information you are inputting and how this affects your business. There's no use kidding yourself and buying software that looks fantastic but is way above your digital literacy.
Having clear records of your income and outgoings gives you the information you need to make accurate projections for your business. When you are talking about financial fitness in terms of a company, it's all about whether you understand where your money comes from, where it goes, and what the biggest risk factors are.
To keep your business healthy, you need to generate a cash flow that is more than your outgoings. That's simple. But implementing it consistently as your company fluctuates is much more complicated.
You need to create an annual operating plan with projected profit margins for the year ahead. Companies will often do two calculations representing the best and worst-case scenarios for your business. Following this plan will help give your firm structure and gives you a good indication of where it needs adjusting throughout the year. This will ensure you stay on top of your finances and can be prepared should your main client not pay on time, for instance.
Remove any emotions
If you've built your company from the ground up, it's likely that you'll be emotionally attached to it and this can influence your finances if you're not careful. You need to decide on a fair way that you can accurately determine the true value of your business to others in order to properly understand where it stands financially. This is an important part of running your company, even if you're not looking to sell it anytime soon, as it helps you understand how secure your business model is.
This can also help guide important decisions. Look at your records to see where you are losing the most money, and where you are enjoying the most success. This can be complemented by customer data but can help you determine the best ways to stay financially secure in the future and grow your company further. For example, if you're spending a lot of time chasing a certain client for money, you may want to dedicate less time to them in the future and instead focus on acquiring new business.
These tips should help you keep a hold of your business' finances, but it's important that you see this as a marathon instead of a sprint. Accounts are something that become a lot more stressful if you leave them unattended for months at a time. Instead make regular slots in your calendar to sort through your finances, making sure you're following the above recommendations.
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