Successfully running a small business takes courage, hard work, knowledge, and management skills. External market forces, socio-political situations, and other happenings can affect your work positively or negatively. While you cannot control such situations, you can prepare your business to withstand all such scenarios effectively by building a solid financial management system for your financial health.
How To Maintain the Financial Health of Your Business
Here are the seven tips for maintaining the financial health of your business:
Prepare a Business Plan
Be it a journey, your dream house project or your small business, starting without an itinerary or map is not the best idea. You waste time and effort trying to get back on track and lose valuable resources and, eventually, even the interest or passion in the job. It’s always advisable, to begin with a carefully designed business plan that gives you and your employees a clear idea of the vision and mission of the business, as well as the available financial resources that can be employed to achieve that vision. A detailed business plan can outline growth opportunities, potential risks, market trends, consumer preferences and other vital data needed to plan your action and prepare for any sudden road bumps.
Separate Personal from Business
While you certainly are the whole and soul of your small business, keep your personal and business finances separate right from the beginning. It is prudent to open a separate bank account for all business-related activities, including receiving payments, making payments, credit cards, loans and other financial matters. As far as possible, do not transfer money from your personal account to your business account. Treat your business as an individual entity with its own identity and money so that your personal finances are not affected by any friction in the business and vice versa.
Organize Systems for All Financial Transactions
Streamlining daily bookkeeping and accounting processes from Day 1 can be a blessing, especially during tax season. Having a proper invoicing system in place, checklists for inventories, updating bank statements regularly, and ensuring all books of accounts are up to date and accurate – are simple enough if you have a detailed process. Because they are time-consuming, many business owners keep putting them off for a later date, only to end up regretting it. Having all your financial figures and documents in place makes it easier for the accountant to compile financial statements for potential investors or partners. It wouldn’t be wrong to say that one of the indicators of a healthy, sound small business is how well-maintained its systems are.
With technological advancements, you can digitize all your business systems, making them easier to handle, access and create a backup. Using the latest software can also provide better security for confidential data.
Manage Cash Flow
An effective cash flow acts like a stable heartbeat for a business. You can determine seasonal fluctuations by observing the changing patterns of cash inflows and outflows and adjust your cash allocation accordingly. A smooth cash flow comes in handy during unexpected setbacks or financial difficulties. Thus, always ensure your cash flow is well regulated and keep an emergency fund ready for unforeseen circumstances arising in your business journey.
Keep An Eye on Costs
While carefully counting every penny, it is equally essential to cap how many dollars flow from your business. Managing debts smartly and employing cost-effective ways of running your day-to-day business operations can add to your available financial resources. Try negotiating better deals with suppliers and creditors to keep your outgoings to a minimum while optimizing every dollar you spend. Before taking it, ensure you carefully assess and understand the repayment terms and any other conditions connected to loans or borrowing. Just like with your personal finances, using your retained earnings for business expansion is the key to a happy business constitution.
Review and Revise Your Business Finances
Just like you undergo regular health checkups to make sure your physical health is in good shape and identify any problems before they grow bigger, your small business also needs a financial health checkup at regular intervals. As a business owner, you are responsible for staying on top of everything that happens in the business and ensuring all is going well. While many companies have an internal audit team that does this very job, having external auditors thoroughly check your business could be a great idea, significantly if your business finances are not growing as expected or growing too fast. An external auditor will give you an unbiased report of your business’s financial well-being and help you identify fraud and financial gaps. Based on the findings, you can review and revise any strategies or fill in any gaps in fiscal operations to boost productivity.
Seek Expert Help
Simple as all these tips may sound, their practical implementation can be a daunting task, significantly when a small business is growing. At such times, apart from observing and identifying loopholes in the financial system, you need someone who can guide you on the next step upwards. A business consultant can help you set your financial systems, adjust the forecast to match the growth, and make informed financial decisions. They can read the markets more effectively and provide valuable insights and advice on how to move forward.
Maintaining sound and competitive financial health is as vital to a small business as creativity, innovation, and investments are.
Contact McCay Duff LLP in Ottawa for Expert Business Financial Planning Advice
A skilled business consultant can help you build, review, or revise your finances according to your needs. To learn more about how McCay Duff LLP can provide you with business financial planning expertise, contact us online or by telephone at XXX-XXX-XXXX.
