According to this study by the University of Tenneessee, one of the biggest reasons why many new businesses fail is because of a lack of proper financial management.
It is common for small business owners not to have basic knowledge of Accounting. Although this is understandable, it doesn’t mean that accounting can be ignored. It can’t.
Does this mean that every small business owner has to be an Accounting expert? Of course not. However, having a solid knowledge of the fundamentals in Accounting will help you manage your business finances better and ultimately reap better results.
In this Clever Accounting blog we’ll be regularly posting short blog posts with important tips for small business owners to help you improve your business management. The following are 5 reasons why business owners should remain aware of the their business accounts:
Know how your business is doing
The success of most businesses is measured through monetary results. If the numbers are nice, then the business is doing something right (not necessarily everything). However, if the numbers are in the red, then something is probably wrong. Checking your accounts regularly lets you quickly notice (positive & negative) trends in your organization.
Take care of your cashflow
Cashflow forecast/actual is a document that forecasts how much money is spent and the amount of expected sales and other income one expects over the coming months. Usually a cashflow forecast is done for a year. As time goes by, the cashflow document must be visited and actual income and expenditure registered and compared to the forecast. This exercise helps the management on decision taking, adjusting the operation of the business in line with available resources.
Avoid forgotten expenses and tax fines
Regularly looking at the income and expenses of your business will help you better anticipate future outflows and inflows of money.
When you haven’t checked how you’re doing for a few months you might realize that you’re paying for stuff that you don’t need. For example, you might have signed up for a monthly Dropbox subscription and you’re not using it.
Keep up with who owes you money
People don’t always pay on time. Business owners are often so busy dealing with everyday issues that they forget to do less desirable tasks like running after clients to pay up. Without realising, you might even have clients who are threatening your business. Late paying clients can result in serious cash-flow problems that can affect your business development and survival.
Being able to generate a report listing your creditors in an instant is something small business owners should be able to do. Here’s a quick video of how to do this in Clever Accounting.
Budgeting is one part of business planning, and it is a very enlightening exercise. Although we cannot know the future for certain, we can make informed predictions on which we can base our business decisions. Without budgeting, the decisions we take cannot be based on how the business is currently performing against the expected financial performance of the business.
For example, a sales rep phones you up and offers you a special offer full page advert running on the local business magazine. Only €350, a real bargain! However, without a budget, you cannot take into consideration how your company is performing (financially) against the future projections/goals that you had decided on. Would taking the offer break your future stability? Budgeting goes hand in hand with forecasting and together you will be able to plan for your business in a more informed way.
There is a lot more that can be said about good financial management. Do you have any other tips that you could share from your experience?