Knowing the condition of your business’s financial situation from front to back can help ensure the cash keeps flowing. Remaining on top of the funds will allow you to avoid unexpected debt and free up cash that can be used for investments or for growing the business.
There are a number of components that go into creating the ideal framework to manage the finances. Jose Duarte, a successful businessman and entrepreneur from Costa Rica, has developed a system that has worked for more than 20 years and he shares 15 of the most important tips to help manage a business’s finances.
Always make sure to properly manage the accounting – from before the business even gets off the ground. If necessary, hire an accountant or purchase quality accounting software, but remember that it is vital that all costs and income are tracked at all times.
In tracking the costs and income, you will be able to also track the expenses, which can add up quickly. Reviewing them will be easy and will give you the opportunity to tweak outgoing monies to improve operations.
Make budgetary projections. Says Duarte, “It is imperative to have clear financial projections. The main business plan will give you the ability to predict and address future hurdles.”
Maintain a separate bank account for the business. Blending business cash with your own accounts is a formula for tax headaches and unexpected losses. “Keeping your business’ cash separate will make ascertaining profitability less demanding and help you to monitor your costs,” explains Duarte.
Monitor individual loans to your business and keep exact records of what you credit to the company. At the point when your business begins profiting, you can easily pay back the director’s loan, if it exists, which will reduce the tax due by only considering the remaining amount.
Whenever possible, try to pay yourself first. This doesn’t mean sucking up all the profit as soon as it’s made – start with around 10% of the earnings. This is an excellent method for setting aside funds on a consistent basis and for testing the business’s profitability. It can also provide a safety net for unanticipated expenses.
Despite the fact that you pay yourself, don’t get sucked up in the advantages of business ownership. Maintain a low salary and provide only those benefits required by law. “The more you save now,” says Duarte, “the more you will have in the future during any downturns.”
Travel costs should be kept as low as possible. Hotels need to be seen as nothing more than a place to sleep while you travel from meeting to meeting – don’t splurge on luxurious accommodations. It will set a bad precedent for employees and is an unnecessary cost that provides virtually no return.
Where possible, don’t turn to expensive lawyers to handle simple needs. Do-It-Yourself legal documents exist for a variety of scenarios online and they can all help you cover basic negotiations.
When going through an expansion, be smart. Allocating too much money, too fast can have disastrous consequences.
Be responsible for your own public relations and marketing. Create a strategy and stick to it.
Consider leasing as opposed to purchasing. Renting gear as opposed to purchasing it will allow you to avoid maintenance costs and expenses for equipment that may only be needed for a short period. Renting office space, instead of buying, will give you flexibility when it comes time to relocate or expand.
It’s common for many entrepreneurs to wait until the hard times hit before applying for credit. However, this is the least opportune time and will make receiving a loan more difficult. Says Duarte, “Apply for a business loan when the finances are still strong. The loan can be used for expansion or even for a line of credit, instead of funds to rescue the business.”
Private companies tend not to have enough money to get themselves through the startup stage. To avoid this, always have three months’ everyday costs set aside in addition to the sum you anticipate the business to need for the first three months of operations. Live as though the business is not going to receive any revenue.
Try not to spend rashly. Try not to pull out all the stops on business cards, sign composition, advertising materials, vehicles or stock before any real income comes in. These expenses can quickly become a cash flow blockage.