The Entrepreneur's Guide To Financial Management
One of the more complicated aspects of managing your own business is just staying on top of your company’s finances.
After all, it doesn’t take long at all for your company’s financial history to be filled with dozens upon dozens of mini transactions and recorded earnings. The sheer volume of figures and data that come across your screens every day is enough to make your head swim.
If you are feeling like you’re drowning when it comes to managing your company’s finances, we’re here to say that you’re not alone. Learning the ins and outs of financial management is a rite of passage for all entrepreneurs. Thankfully, this seemingly monolithic task can be broken down quite easily.
Here are just a few ways that you can organise your business finances and stay on top of your company’s financial performance with ease.
Separate your banking from your business banking
Alongside investing in business management software, opening a business bank account is hands down one of the single greatest things that you can do to set your enterprise up for success. This is because having a dedicated business bank account set up before making any sales can allow you to maintain a clearer picture of your company’s spending and earnings from the get-go.
As you may imagine, having this crucial piece of financial infrastructure in place can help greatly simplify virtually all aspects of your company’s financial management, from completing your break-even analysis to calculating your business deductions in the lead-up to tax time. Having a business transaction account can also be a valuable tool when it comes to making office supply purchases or even just keeping track of ad-hoc business expenses like Ubers or other unforeseen travel costs.
Separating your business banking from your banking can also provide the added benefit of further establishing your business as its entity that’s separate from you as an individual. When you open a business bank account, the account name will effectively be the same as your company name, which means that any invoices that your company sends out can be payable to itself rather than payable to you. In other words, having at least one dedicated business bank account set up for your business can make your business feel that much more concrete and legitimate in the eyes of your clients, staff, and stakeholders.
Keep track of your expenses from quarter to quarter
Now that you have all your business expenses and earnings filtering through to one business bank account (or multiple, depending on the size of your enterprise), it’s now time to set up your financial management processes. This refers to all the processes involved with evaluating your company’s recorded income and expenses and organising this information across hard-copy and/or digital files that pertain to individual financial quarters.
Maintaining this practice can help you pinpoint any excessive expenditure with greater certainty from quarter to quarter. For example, if you have suspicions that a particular department in your company is spending unnecessarily, you can review their expenses alongside those recorded by another department within a given fiscal quarter.
This practice can naturally also help streamline the process of filing your business tax returns come the end of every financial year. No longer will you have to waste time chasing down receipts so that you can back up a tax deduction. From here onwards, you should have everything you need thanks to the expense and income tracking processes that you’ve been able to put in place.
Don’t overextend yourself when it comes to business loans
All seasoned business owners know that generating a consistent cash flow is one of the most challenging aspects of managing your own business – especially if you’re a smaller or medium-sized enterprise. If you do ever experience issues with your cash flow, then it’s highly likely that you may turn to financial lenders for a little bit of external support either for weathering the storm or for funding strategies for development or innovation.
And whilst business loans can provide a lifeline for your business during its earliest stages or at times of economic downturn, there are some undeniable dangers associated with taking out these financial liabilities. For starters, taking out a business loan will impact your company’s ratio of assets to liabilities for the duration of your loan repayment period. This can, in turn, affect your ability to attract any new investors or buyers, if you’re hoping to organise a company acquisition down the line.
If your company is experiencing ongoing issues with cash flow, there’s also no guarantee that you will be able to pay off your loans, which can in the worst-case scenario, result in your company going into liquidation. And we’re not just trying to fearmonger here. Financial management is all about maintaining a balance between your incoming and outgoing funds. So if the balance is skewed towards the latter side of that equation, then it’s probably best to avoid taking on any additional debt.
Be realistic about the cost of growing your business
That brings us to our final point and one that most entrepreneurs will often find themselves grappling with when they’re on the verge of success: understanding the real costs of business growth. It can be so easy to become idealistic about funding the growth of your business, but the reality is that not all investments made for the sake of your company’s growth will be likely to yield a high return.
With that, it’s important not to put all your eggs into one basket, so to speak. In other words, don’t overinvest in one facet of your company’s growth potential. Keep your business growth strategising broad and multidimensional rather than hyperspecific. And this advice is doubly applicable to small businesses that are less likely to have the resources required to maintain an aggressive or proactive growth strategy.
And if you are wondering whether the cost of additional overheads or new staff factor in here as well, then you’ve hit the nail on the head. Whilst there is some value in the age-old adage that you ‘gotta spend money to make money’, you also want to make sure you have adequate financial resources to respond to other opportunities that may arise before your competitors do. Yes, it pays to be a baller, but the best ballers are those that are agile and ready to make moves when they need to.
As we’ve mentioned throughout this guide, financial management is all about balance. Learning how to look past the numbers and engage with the reality behind your company’s figures can help you maintain a healthy balance between your earnings and your outgoings. And it is this ability to maintain balance that will help your company grow organically, that will help you helm a larger enterprise as your billings grow in suit. That is without a doubt, the most sustainable way to transition from a startup entrepreneur to a bonafide CEO.