Managing your finances is one of the toughest challenges for business owners. It can be difficult to balance the books and keep expenses in check, and it’s easy to lose track of outgoings. Cash flow issues are among the most common causes of business failure. It’s essential to seize control from day one.
In this guide, we’ll outline some simple steps business owners can take to avoid financial pitfalls.
Consider Alternative Solutions
Firstly, you should remember that there are many different ways to potentially run a business. While this has been true for many generations, alternative routes are even more accessible in the digital age. For starters, you might be better suited to working as a self-employed contractor rather than launching a business.
Rather than starting a new company, you could also look to buy a franchise. Finding a franchise local audiences will love won’t only give your startup a headstart. It also means that you can leverage success from the parent brand to win new customers with ease. A lot of the theoretical aspects and planning are already in place too. This means you can focus on putting them into practice and growing the franchise.
If nothing else, it is far easier to forecast your overheads when purchasing a franchise. In turn, you should find it a lot simpler to keep your finances on a positive trajectory. This is supported by other benefits like having access to the knowledge of mentors and other franchise owners. So, it is a fantastic choice for your first business venture.
Keep an eye on expenses
We tend to automatically think about boosting sales and trying to bring more money in when embarking upon a mission to increase profits. This can be beneficial, but it’s also wise to keep a close eye on expenses. Even if sales are booming, your profits will suffer if you are spending too much. Use online resources, or consider hiring a bookkeeper or an accountant or outsourcing if you have limited experience or very little time to devote to the books. It is vital that you analyse spending to ensure that you have an accurate idea of where you are in terms of profits and losses. Use an operating profit formula, carry out audits and go through statements to see where your money goes and where you could make savings. There are multiple options to explore if you are looking to reduce outgoings, including adjusting your staffing structure, setting a cap on employee expenses and investing in technology.
Make use of data
Business owners now have access to real-time data and tools that enable them to keep track of spending, sales and operating costs. Make use of the data you have available to you to analyse profits and losses, identify potential weaknesses and spot changes in trends or buyer habits. There are several uses for financial data, including budgeting and forecasting and gathering information about how customers are spending their money. Use this data to inform decisions going forward. It’s also hugely beneficial to try to capitalise on areas of the business that are growing and to engage with customers to get ideas and suggestions to improve products or services.
Budget
Every business should have a watertight budget. Budgeting helps to regulate spending and it can also provide useful information about where your money goes every month. Update your budget regularly, use exact figures where possible and always round up, rather than down. Once you have figures in front of you, use your budget to allocate funds to different departments or costs and set limits to help you prevent overspending.
Reinvest when possible
Most entrepreneurs start a business with the dream of expanding and growing. If you are eager to develop your business, try to reinvest at the right time. Look for positive signs, such as increasing demand, new client referrals and increases in sales and profits.
Managing your finances is one of the most challenging aspects of setting up and running a new company. If you are looking to increase profits, reduce risks and expand your business, it is essential to seize control of your finances, monitor performance and collect and analyse data continuously — and of course, keep a firm grip on spending.
