Majority of small business owners are caught up with similar challenges. These challenges could relate to daily operations as well as in depth finances. At times, they are unaware about the growth opportunities and they fall into flawed contracts with their suppliers. They also tend to make hasty decisions based on cash availability and future sales. If you have ever faced any of these challenges, then you are in the need of a Financial Management Plan.
Financial Management is a process of planning, organizing, controlling and monitoring financial resources with an aim to achieve organizational goals. Having a safe and sound financial management plan will allow your business to grow and expand to greater heights.
At Revby, we believe there are 4 main components for a safe Financial Management Plan - Budgeting, Bookkeeping, Profit & Loss Statement and Business Loans. Lets dig deeper into each of these components.
1. Budgeting
In simple words, budgeting is the process of creating a plan for spending your money. It captures the inputs and outputs of the business. It is a type of forecasting and can be used to understand the relation between costs and revenues. Budgeting helps business owners control their spending and track their expenses. It allows owners to manage day to day flow of money, analyze break even units and points and assess the viability of the business along with the business strategies.
2. Bookkeeping
Accounting is not just an instrument for entering financial data in order to complete your tax requirements. Instead, bookkeeping is a powerful technique that allows a business owner to reflect upon his tactical decisions. Bookkeeping involves recording a business’s daily financial transactions. It is the basis for your operational and financial decision making. It is a critical component of a financial management plan as it is considered as an organized process of tracking income and expense transactions.
3. Profit & Loss Statement
A P&L Statement is an indicator of the financial health of a company. Analysis of the P&L Statement is integral whilst making business decisions. It measures revenue and expenses over a period of time. Furthermore, it tracks the business profitability as well as business growth and repayment capacity. A P&L Statement can help business owners evaluate their operational success on the basis of a net profit or net loss.
4. Business Loans
Business loans provide small business owners with a financing opportunity to increase their cash flow, upgrade their technology or expand their business. However, there are plenty of criteria's and packages while dealing with formal business loans. In order to qualify for a business loan, business owners need- good credit score, equity contribution, repayment ability, availability of collateral and a favorable loan to value ratio. Additionally, common loan package elements include- business plan, current and historical business financial statements, personal financial statements and personal and business tax returns.
Once you have a brief understanding of these components, you must review your current management practices. Ask yourself these questions-
Which Accounting software am I currently using for my business? Is it a good fit for the size of my business? Am I utilizing all the tools efficiently? Am I overpaying for the services?
Is my business checking account properly set up?
When did you last reconcile your checking account?
Am I checking and depositing sales revenue from all directions? Is online and offline sales accounted for? Is the new product range generating enough sales?
Is my business card utilized effectively? Is my credit range healthy?
Are my business expenses prioritized?
If you have trouble answering any of these questions, you can reach out to us here and we would love to guide you through the process. However, most of the answers lie within a switch to accounting software. Several accounting software are created to ease the process of bookkeeping and allow the business owners to focus on maximizing output rather than dealing with the hassle of accounting. These accounting software are modified to fit any sort of a business and provide a wide range of tools to increase efficiency. Few such software are- Quickbooks, Xero, Mybooks and OneUp. One can always resort to these accounting software to avoid common business accounting errors such as - falling behind in entries, mixing business and personal finances, making calculation errors, losing receipts and focusing only on short term needs among others.
As a whole, financial management is considered as one of the most important aspects in business. It increases the overall value of the firm by providing economic stability and every business owner should follow these practices religiously.
About the Author
Anushka Shah is a Finance and Business Graduate from Boston College. Find her on LinkedIn: Anushka Shah | LinkedIn