The Important Role of Financial Management in Business.
When running a startup or any business enterprise, understanding this simple thought helps to keep things in the proper perspective. Cash is King.
Scratch. Wampum. Dough. Sugar. Clams. Loot. Bills. Bones. Bread. Bucks. Money.
That which separates the haves from the have-nots. Most people, commonly entrepreneurs, possess a fundamentally flawed view of money. Especially the role of financial management in business.
But what is money? How large is the role played by finances when running any type and scale of business? Simple. Money is everything if you don’t have it, right? Here’s something to ponder on; Half of all American adults have more credit card debt than savings. 25% have no savings at all, and only 15% of the population is on track to fund even one year of retirement.
Cash Is King.
There isn’t any other way to wrestle this fact. For most people, money is more than just an agreed-upon unit of exchange for goods and services. Some believe it to be intangible in ways. Believing it can buy security or happiness, even peace of mind.
In business, whatever the scale or size, money comes often as a measuring device. Finance managers face the hard reality of forecasting how much money a business enterprise can actually accumulate in its projected run. They do analytics day in and day out. You see, economic factors affect how money functions regardless of who’s president, the economic bubbles bursting, bad breaks, or bosses.
Financial management in business is essential. It’s about your company work ethic. Specifically the one that will make or will have made your startup, the greatest on Earth. It’s much like bucking the neighborhood tea party’s opinion as to what constitutes a good parent. It’s deciding to miss the ball game, the play, the concert, because you’ve resolved to work and invest in your family’s future and take responsibility for the consequences of those actions.
Patience. Frugality. Sacrifice.
When you boil it down, what do those three things have in common? Those are choices. Money is not peace of mind. Money’s not happiness. Money is, at its essence, that measure of an entrepreneur’s choices.
Today, let us begin to educate ourselves with the measure of our obvious choices when it comes to financial management. Let’s read about habits that help boost our financial IQ, and address all the pain points that come with lack of finances.
There is no question about cash flow being important in running a business. The risk of losing control over finances will often leave the entrepreneur running a business to the ground, or leaving it financially challenged. What are businesses, especially startups, financial pain points likely to face? Are you prepared to tackle them and survive any financial instability?
Because we care about your pain, here’s our list of possible financial concerns that a business can encounter and solutions should you ever face any of these challenges.
Insufficient working capital
For any business, working capital is the lifeblood that flows through its veins. A responsible entrepreneur must, at any point, have working capital worth at least six months of expenses. Without this money in hand, you won’t have the breathing space required to acquire new customers or build more products.
The easiest way to improve your financial situation is to try and cut your expenses by 20% and put that amount aside every month to build your working capital. If you’re just starting out, ensure that you are adequately financed.
Underestimating startup costs
Most entrepreneurs tend to underestimate how much starting a business will cost them. Higher figures might scare you, and you might be tempted to underestimate your needs, worrying that investors may not be willing to finance your startup. The reality is quite different. Banks look for realistic plans when approving investments. If you borrow less money than required, you could run out too soon and will need to borrow again later.
Factor in all worst-case scenarios and estimate startup costs accordingly. You will only be delighted when half your fears are not realized. By borrowing the amount you know you really need, you are more likely to survive and grow.
Sales good, Profit low
This could indicate overspending or some hidden costs eating away at your bottom line. Are your expenses out of control? How can you get out of this setback?
Make sure you are buying the right materials at competitive prices from vendors who bring value. If need be, revisit vendor selection and old contracts to renegotiate prices. If you make a lot of online purchases, use free apps and tools, such as HDFC Bank SmartUp, to track your spends and streamline purchases.
Late client payments
A large percentage of small businesses suffer from delayed payments. If it happens too often, it can eventually kill the business. You need to create policies and processes to circumvent this situation.
Avoid offering business credit to new customers. Make sure everyone is clear about payment policies. Incentivize early payments, offer multiple avenues for payment, and enforce late payment penalties. And do all this with a smile.
Bad cash flow management
Unorganized bookkeeping habits are a business’ bane. Managing books of finance is critical to run a successful business. Unfortunately, most small business owners are bad record keepers. Monitoring cash flow regularly can let you know in advance when you might need money. Do you find it difficult staying on top of your cash flow?
There are several free tools, templates, cash flow calculators, and paid apps that you can use to gain better control over your cash flow management. Give us a call, drop us a note, we’re here to help you out, because that’s what we do here at Tize. We care a lot!
Cash Is King.
Finances are what make a business run, thus it is more than critical to be financially prudent from the onset. Tracking your cash flow efficiently helps you not only to stay competitive, but it helps you as an entrepreneur grow hairs on your chest. The mastery of money in business, the vital role it plays in running a business, is, has, and will always be, top priority.
Here at Tize, we help the budding business entrepreneur, YOU, to do just that.