As a business owner it is very essential that you should understand figures, especially those figures that pertain to your business. Knowing and understanding money matters is one of the essential skills of a successful entrepreneur. As a business owner, it is necessary for you to understand what is happening in your business – how much money is going into it, how much is your expenditure, and what is your profit. Critically speaking, it is important for you to understand the financial statements pertaining to your business so that you can be in control of your finances and take the right decision at the right time.It is possible that you may be having finance managers and accountants to take care of all the financial aspects, but as a business owner you should be directly concerned about the financial health of your organisation. Maintaining correct records is one of the most important tasks of a business where sound financial management is one of the parameters. And, this is possible only when you know the correct financial condition of your business. Precise financial information makes all the difference between success and failure of a business. Careful and regular monitoring of your accounts will help you run your business more efficiently, keep your expenditure in check, control your cash flow, and increase profitability.
Once you are able to comprehend the information given in your financial statements, you can go a step further and analyse these figures which can help you to gain a better idea of your business. Try to do some basic financial analysis – comparing your actuals with the forecasts. You would, after some time, understand that accountants take the help of these figures to make important decisions affecting the business.
Financial analysis can reveal a lot about the performance of your organisation, including its overall financial health. Some other parameters which financial analysis can reveal is liquidity, capacity to meet the dues of its creditors – both short-term and long-term, and profit. Financial analysis can also help you identify problematic areas and implement corrective measures to improve the performance of the company.
Here are a few tips to help you manage your business finances better:
Manage your debtors
Make an effective credit policy which is one of the important aspects of financial and cash flow management. You could also encourage your customers to pay more quickly adopting the stick and the carrot method. Those who pay up quickly could be offered some incentive while those who delay their payments could be charged interest or levied a penalty. Review your payables regularly and stringently follow up those dues which show a tendency of becoming bad.
Keep a close watch over your expenditure and put your foot down strictly when you see any untoward expenditure. Ensure that there is no wastage of utilities. In times of a slump or lean season you could think of hiring temporary staff, contract, or part-time labour which can help you save quite a bit.
Make effective use of your credit
A strict watch needs to be maintained to see how you are using the credit facility sanctioned by your bank or financial institution. See that you make the best use of your term loans and credit lines. While you can use the term loan for long-term capital purchases, credit lines can be used for short-term working capital requirements or any unexpected business needs.
Use surplus cash effectively
Use your judgement to assess how much cash you need to set aside for emergencies or other unforeseen expenses. You can easily do this by a review of your company’s cash flow history. Use any surplus money that you have to pay off debts.
The article tells how important it is for you, as a business owner, to know and understand what is happening in your business – how much money is going into it, how much is your expenditure, and what is your profit. Critically speaking, it is important for you to understand the financial statements pertaining to your business so that you can be in control of your finances and take the right decision at the right time.