Entrepreneurs are passionate people with big ideas, but when it comes to financial management, there may be some holes in their knowledge. This is not due to a lack of intelligence, but because financial management is a complex and ever-changing field that experts spend years studying.
To help small business owners close the gaps in their knowledge, we've laid out the four key aspects of financial management that small business owners should know about in order to make sound decisions for their businesses.
1. Cash Flow Management
One of the most important aspects of financial management for small business owners is cash flow management. This is the process of tracking and managing the inflow and outflow of cash within a business.
Think of cash like gas in the tank of your business. Without it, your business can't run.
That's why it's so important to track your cash flow and ensure that you have enough cash on hand to meet your business's needs.
Remember that there's a difference between cash flow and profit. It's possible to be profitable and still not have enough cash on hand to pay your bills. That's why it's important to track both profit and cash flow.
Tracking and understanding your cash flow can be complex, especially if your business has a lot of moving parts. But there are a few key things to keep in mind:
· Inflow: This is the cash coming into your business from sales, investments, loans, and other sources.
· Outflow: This is the cash going out of your business to pay expenses, taxes, and other debts.
· Net cash flow: This is the difference between your inflow and outflow.
2. Financial Planning
Another key aspect of financial management for small business owners is financial planning. This is the process of creating a roadmap for your business's financial future.
Creating a financial plan involves setting goals and developing strategies to reach those goals. It also requires regular monitoring and review to make sure that your business is on track.
Your financial plan should cover both the short-term and long-term financial needs of your business. This includes things like cash flow, expenses, revenue, profit, and growth.
Of course, taxes are a key aspect of financial management for small business owners. No one likes paying taxes, but it's important to understand the tax laws that apply to your business.
There are many different types of taxes that businesses have to pay, including income taxes, property taxes, sales taxes, and payroll taxes. Depending on the type of business you have, you may be responsible for paying one or more of these taxes.
However, at the same time, there are often lucrative incentives and advantages that can be gained by understanding and following the tax laws. These can include deductions, credits, and other benefits that can save your business money. However, in order to really make the most of these benefits, you need an expert accountant or financial manager on the side.
4. Business Credit Score
You probably know about personal credit scores, but did you know that businesses also have credit scores? This is another important aspect of financial management for small business owners.
Your business credit score is a three-digit number that lenders use to evaluate your creditworthiness. It's similar to a personal credit score, but it's based on your business's financial history rather than your personal history.
Building and maintaining a good business credit score is important because it can help you get access to financing, improve your terms with lenders, and save money on interest payments.
Small business owners need to be aware of these four aspects of financial management in order to make sound decisions for their businesses. Cash flow, financial planning, taxes, and business credit scores are all important considerations that can have a big impact on the success or failure of a small business.
Understanding these concepts is essential for any small business owner who wants to manage their finances well and make smart decisions around money - which should be all business owners!
If you would like support in improving the financial position and accounting systems of your business get in touch with us, please email us at email@example.com or call us on (08)6383 7938