The first few years for any new business are crucial to its long-term success, with many challenges to overcome and lessons to be learned.

Every business, big or small, is always concerned about one thing, managing finances. Proper financial management is crucial to surviving a volatile economy and the industry competition.

Cash flow problems and mismanaged finances are major causes of business failure. Some companies fail to plan properly, some set their sights too high or low and some don’t keep track of their costs.

Small businesses, need to exercise caution with their financial decisions from the very beginning. It takes more than just a good idea to run a business. However, every business needs a financial structure that generates a profit to stay credible.

You can maximize your chances of your business success by being aware of the pitfalls. Then you will be able to manage your business finances carefully and keep a close eye on its cash flow.

As an entrepreneur, you need to be equipped with good financial management abilities to turn your venture into a success story.

Taking sensible, practical steps will help you to control spending and grow your business without taking excessive financial risks. Here are some useful tips to consider.

Educate Yourself
One of the first things that you should do is to educate yourself about the various aspects of finance.

For starters, learn how to read financial statements (if you don’t already know how). This is one important statement that tells you all about your finances, where it came from, how many hands it changed, and where it is.

Financial statements contain 4 essential details
Cash flow statement: analyzes operating activities, investments, and financial in/outflow
Income statement: reflects the revenue earned within a specific period of time
Balance sheet: provides information related to the company’s assets, liabilities and shareholder’s equity
Statement of shareholders’ equity: represents the amount by which the company is financed through common and preferred shares.

Separate Personal and Business Finances
Always keep your personal and business finances separate. This entails getting a business credit card and putting all related expenses on it. This should help you track your outlays and keep you in control.

You will also do well in opening a savings account dedicated to your business, wherein you can transfer a certain amount of money from each payment that you receive and gradually build a considerable corpus.

Cut Off Costs
It is important that you stay tight-fisted to keep your expenses in check without hampering customer satisfaction. This, especially, holds true for small businesses.

Every business endures 2 types of costs, fixed and variable. While fixed costs have to be borne irrespective of whether your business is making money or not, there is scope for savings in variable costs.

For example, instead of buying costly branded software, you could work with free, cloud-based, open-source software, which is equally good. Conduct free online calls, video conferences instead of travelling lost distances. You could also try bartering your services with other professionals and cut costs.

Invest in a Cloud-based Accounting Software
While you can definitely download regular accounting software to manage your finances, it will never give you the kind of convenience cloud-based accounting software can.

A web-based software will provide you with real-time insights as most allow you to store, update, track, and access data from anywhere at any time.

Whether you’re at home, office or are travelling, you can conveniently work with your data from anywhere you like. It is error-free, hassle-free and dependable. A good example is Xero, it is easy-to-use online accounting software

Monitor and Measure Performance (Chart your cash flow)
As a business owner, it is crucial that you keep tabs on the movement of your finances, especially when large amounts are involved.

Keep in check at your company’s financial performance in comparison to the past financial statements to project your future revenue, expenses and cash flow. Being aware of these aspects will help you make informed decisions for your business.

Good accounting software can create charts of inflows (sales of goods or services) and outflows (accounts payable) for your business. It will let you change the time period and other variables so you can really understand what’s happening.

If you look at these charts over a period of weeks and months, you’ll get an idea of the rates of flow of money into and out of your business.

Obviously you need the inflows to be greater than the outflows in order to make a profit. But the size of the difference is what’s important. It will vary over time because few businesses make a consistent profit day in, day out.

Looking at the charts will help you see the pattern as these values change.

Is the difference between income and expenditure often small? Does it sometimes dip into negative territory? Those are periods when your business is potentially at risk of cash flow problems.

Try to find out what’s causing this to happen at specific times. You can then attempt to restructure some aspects of your business to avoid the dips.

Get Professional Help
Everyone needs help, especially a budding entrepreneur interested in making a huge success of his venture.

Sometimes, it pays off to engage the services of an expert, even if it is on a part-time basis. An expert will help you in determining where your business is and where it is headed by analyzing your data.

Make sure you hire someone you trust.
Whether it is tax planning for the next financial year, or payment for the current year, an expert’s expertise can go a long way in guiding you and bringing you peace of mind.

Be ambitious but stay realistic
Ambition and enthusiasm are important characteristics of business owners and managers. But so is the ability to make rational financial decisions based on the facts.

When you start a new business, the feeling of control can be exhilarating. Free from the constraints of employment, you can make any financial decision you want to. Some of those decisions will be good. Others won’t be good.

Like any other area of life, learning to run a business comes through experimentation, successes and occasional mistakes.

These mistakes are very important. If you read any successful entrepreneur’s autobiography or biography, mistakes will feature highly.

Successful entrepreneurs have two things in common, they learn from their mistakes, and they make small enough mistakes that they are able to recover from them financially. Donald Trump is a great example in this case.

This is a pragmatic approach to doing business. Few large companies never became large overnight. They grew over a period of time, with setbacks along the way. Taking the occasional risk is part of good business. Taking unnecessarily big risks is not.

Manage your company’s debt
Debt is a fact of life for many businesses. It might be startup funding, loans for capital equipment or commercial mortgage payments.

Few businesses are entirely debt-free. And if the cost of the money you borrow is lower than the return generated by your company’s use of that money, it makes sense to borrow.

It also makes sense to keep an eye on your borrowing costs. This is particularly true with variable rate loans, which can change due to any number of reasons, some of which might only be in the small print of the loan contract.

Assess your debts on a regular basis. Look at repayment costs, see whether your circumstances have changed, and decide whether you will need to reduce or increase your debt funding. And don’t forget to shop around.

Try and see if there are better ways for you to borrow. Shifting your debts to a different lender can sometimes save you a lot of money.

Five Questions To Ask Yourself Before Bidding For Big Contracts

Don’t run before you can walk. If your business is ticking over nicely and you’re given the opportunity to bid for a big new contract, stop! Think first.

It can be tempting to “punch above your weight” and go for the prestige associated with a big contract. But that might not be the right choice for you.

Ask yourself some of the questions below before you bid.

Do I have the staff to fulfil the contract if I win it? If not, will I have to hire new staff or use contractors?

Do I have the funds to pay for any new equipment required?

What effect will the new contract have on my current business: am I likely to neglect my existing clients?

What happens when the contract ends, or if it’s terminated early?

What happens if the new client takes a long time to pay?

Sometimes it’s preferable to build up a number of smaller clients instead of trying to sign up one or two larger ones.

Your cash flow is likely to be more predictable that way. And if one contract ends suddenly, or you experience payment problems, it’s less likely to ruin your business.

I will conclude by saying, while starting and running your own business can be exciting, it can also be nerve-wracking, especially when it comes to handling finances in a lucrative manner.

Don’t let your business suffer due to poor financial management. Keep the above tips in mind and give your venture a bright future.

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