10 Tips for Better Finance Management in Your Company

financial management

This a guest post by Emma worden, see Emma’s details at the end of the article

financial management business accounting cashflow  

The basics of taking control of the money in your business

It seems like more and more Aussies decide to give entrepreneurship a go. In fact, according to the most recent studies, there are 2.1 million small businesses in the country and this number is expected to grow even more. However, running a small business isn’t as easy as it may seem, especially when it comes to managing finances. So, if you’ve ditched your 9-to-5 job and started your own small business, you could use any help you can get. And that’s why we came up with 10 tips for better finance managing in your company.

Don’t mix personal and business finances

One of the biggest mistakes rookie entrepreneurs make is failing to separate their personal and business finances. This leaves them not knowing how well their business is doing and whether some changes in their operations should be made. So, if you want to be able to manage your company’s finances effectively, keeping a separate business bank account is an absolute must.

Manage your accounting

There’s no need to say that accounting is one of the most important aspects of being an entrepreneur. If this is your first time running a small business, chances are you don’t know much about accounting. In a scenario like this, hiring a good bookkeeper can be a real lifesaver. If you decide to tackle accounting yourself, investing in an accounting software can turn out to be an amazing idea. 

Be aware of your day-to-day costs

No matter what kind of small business you’re running, you can’t survive in the market if you don’t have enough money to cover all of your day-to-day costs. We’re talking about costs such as your rent, wages and office supplies. Therefore, you need to be aware of how much money your business needs in order to keep operating and make sure you don’t go below this. 

Know how to deal with taxes

If you want to be able to manage your company’s finances effectively, you also need to know how to deal with taxes. If you’re a small business with a turnover of less than $10 million, the company tax rate you’ll have to cover in currently 27.5%. Make sure you meet all the deadlines for filing tax returns in order to avoid fines and interest. 

Apply for a loan on time

There’s no reason for you to wait too long before you apply for a loan that’ll help you grow your business. In fact, if you wait until your company is in a bad financial position to apply for a loan, chances are you won’t be able to receive financing at all. Therefore, make sure you turn to a company that gives fast business loans while your finances are still good.

Create an emergency account

You never know when things can go wrong, and having some money stashed away can be a real lifesaver. The best way to do this is to create an emergency account and move a portion of your monthly earnings to that account. The money you set aside can help you cover payroll during a slow season or allow you to replace equipment that broke down. 

Collect your invoices

If you want your business to survive, you have to make sure you maintain a healthy cash flow. And this is something you won’t be able to do if your clients are late on their payments. The best way to deal with such clients is to hire experts in invoice collection. There are plenty of invoice collectors in Australia and finding a company you can turn to shouldn’t be too difficult. 

Protect your data

Another important thing to have in mind if you want to avoid financial hiccups is that you need to protect all of your company’s data. This is the case because new mandatory data breach reporting laws came into effect in Australia. According to these laws, you could face a large fine in case an unauthorized entity comes accesses anyone’s personal information from your business computer system. 

Don’t spend prematurely

One of the biggest mistakes you simply have to avoid is spending prematurely. This means that you shouldn’t go big on marketing, business cards and inventory until you’re 100% sure your business has what it takes to succeed. Spending too much on things like this can create a cash flow blockage, which is definitely something you need to avoid. 

Remain frugal

When running your own business, it’s quite easy to get sucked up in the benefits of business ownership. However, if your business is still in its early days, you probably can’t afford this just yet. Instead, what you need to do is set your salary as low as possible in order to save money you can spend on improving your company’s operations.

Have these 10 tips in mind and you might just manage to follow the steps of many Aussies out there and start a successful small business. Just bear in mind that even once you establish yourself on the market, looking for new ways to improve your money management is critical.

Would you like to download my 12 Question Cheat-sheet to help you find your next Coach? Click here.

Guest Post

Emma Worden is a business manager from Sydney. She enjoys reading and writing on a business topic and giving advice and tips through her texts. If you want to read more of her work, you can find it at https://bizzmarkblog.com/

The First Steps to Sound Financial Management of Your Business


the simple steps cogs First Steps to Sound Financial Management of your business

©by Roland Hanekroot, New Perspectives Coaching 2013

success and failure

What does it take to make a success of your small business… how can you avoid adding to those frightening statistics about failure rates of small business.

In this series of articles and associated webinars by the authors of “The Simple Steps for Business Program” you will be introduced to the basic concepts and knowledge that will set you up to become a successful ‘Business-Owner’, as opposed to a struggling ‘Business-Doer’.

Format

The format of each episode in the “First Steps” series is to explain the basics of the topic and then in line with the principles of “The Simple Steps for Business” program, to suggest some “First Steps” you can take straight away to put the knowledge into action.

In the first of these articles we’ll look at Financial Management: What do you need to know and how do you need to apply that knowledge to put your business on a solid financial footing?

3 Principles

There are 3 principles you need to understand to manage the finances of a business well:

1)    Why do we need to make profit?

2)    Profit and cash are not the same thing at all and they don’t even have a direct relationship between each other.

3)    Cash is what you must worry about all the time… not profit

Why Profit?

profitLet’s address the principle about Profit first. The first thing to understand about profit is that it is not the purpose of business. Profit is a vital component of business, but it isn’t the reason the business exists. The Purpose of your business must be something much more important and something your customers actually care about. (More about this idea in the article about Purpose and Vision)

The 3 Functions of Profit

Profit has 3 functions:

1)    To pay investors and stake holders in a business a return on their investment.

2)    To provide the business with funds to invest in itself to grow or develop the business.

3)    As the thing by which we measure how well we are doing in running the business.

The first function is straight forward, if someone invests $100 or an hour’s work into a venture, that person wants to see a return for that investment. That return can only be payed out of the profits of the business.

The second function is also straight forward, in that, if you want to buy a new machine or tool or vehicle for your business you need to have the money to pay for that. Profit is what provides that money. (You can borrow for that purchase of course, but then the purchase is effectively made out of future profits)

The third function is about this: How do we know if our business is going well or not so well? The only clear method to answer that question is to keep track at the financial numbers and profit is the most important of those.

The Simple Steps for Business … First steps:

As mentioned in the opening paragraphs of this article, we will suggest some “First Steps” actions you can take right away, that will get you started on implementing the topics and principles we discuss:

1)    Have a look at a great blog post on the Times of London about the importance of profit in business follow this link to the resources page for this topic

2)    If you are not already doing so, start by paying yourself a regular “wage”. A weekly or monthly amount you can live on as a minimum, and record this wage in your books as an expense to the business. You may decide to invest this money back into the business if you don’t need it to live on, but by paying yourself such a wage you will gain a more accurate insight into the profitability of the business and you will start to see how much money you are actually investing into the business and therefore should get a “return” on in the future.

3)    Start a proper bookkeeping program (Xero, MYOB, Quickbooks, Saasu, Freshbooks) and ensure it gets kept up to date at least monthly.

Profit and Cash

The second principle about profit and cash is what brings a lot of small businesses unstuck. A large proportion of the businesses that make up the horrendous statistics on failures in small business do so because of a lack of understanding of this principle.

Profit is a simple sum (on paper) of sales minus costs. So if you sell stuff in a week for a $100 and it costs you $50 in raw materials that week and $25 in office costs, it means that you have made $25 profit that week.

Cash (your bank balance) bears little relation to those numbers in most cases. The $100 of stuff you have sold might not be paid for that week or even that month. You also might have had to pay for the raw materials some time previously and your office costs (staff and rent etc) may have to be paid every Friday. So that at the end of the week your bank account will actually be significantly in the red even though you’ve made a profit.

Cash Flow

river So cash needs to be calculated in a different and slightly more complicated manner than the simple profit and loss equation.

When thinking about cash it is useful to think in terms of flow… money flowing in and out of your account, like a river flowing into the sea. If it rains upstream in Queensland for example, it may take a month for the Darling River to start swelling downstream in South Australia. So when talking about cash we usually talk about cash flow…. Money flowing in and money flowing out. If more money flows into your bank account in a given period than flows out in that period, your bank account swells and vice versa.

The Simple Steps for Business … First steps:

1)    Read this article: “Profit is a liability”, about the difference between profit and cash-flow by Roland Hanekroot follow this link

2)    Here is an article in Inc. Magazine: “5 Ways to improve your cash-flow”. The article explains the long term strategies for improving your cash-flow dramatically. Read the article and ask yourself what steps you can apply in your business:follow this link

Cash is the main thing

cat And that brings us to the third principle that you need to understand about financial management of the business.

I said that the thing to worry about in your business is Cash and not Profit. For most people this is a counterintuitive statement.

The truth of this principle is actually much more straight-forward than you might think, because:

Only cash can be used to pay for stuff

Theoretically, your business may never make a profit and yet survive, as long as you continue to have enough cash to pay the bills, your staff, your raw materials, the rent etc. Obviously without making a profit, the business will ultimately run out of cash, but that can take years in some circumstances. So as a business owner who is committed to put his business on a solid financial footing, Cash-flow must always be your first concern.

The Simple Steps for Business … First steps:

1)    Article by Roland Hanekroot: “Cash-flow, the Basics”: follow this link

2)    Ask your accountant or bookkeeper for a simple cashflow spreadsheet and either start to use it yourself monthly or ask your bookkeeper to do so for you, you’ll be surprised how easy it is to start to get a handle on the cash flowing in and out of your bank account.