Finance plays a critical role in any business.
The ability of a business owner to efficiently manage his/her business finance is dependent on several factors among which are financial consciousness. Studies shows that about two-thirds of business survives 2 years in business, half of all businesses will survive 5 years, and one-third will survive 10.
Another study shows that over half of businesses discontinue operations because of lack of profits or financial funding.
Since finance is so crucial to business survival and often difficult to get for small business owners, small businesses need to exercise caution with their financial decisions. It’s unfortunate that not all business owners are good at handling finances.
Here are four financial-management tips for small-business owners;
- Use Small Business Financial Tools
Financial management task is hectic especially for small-business owners. However, digital technology has brought about a multitude of tools to save small business owners time on daily financial tasks. A smart business owner needs to know and use accounting software, budgeting tool, financial dashboard, payroll management system and cash flow analysis.
For instance, studies show that a whopping 82% of businesses that fail do so because of cash flow problems. These tools are very important because they can help to achieve expense tracking, create budget, streamline the payroll process and eliminate costly inefficiencies, and track key performance indicators (KPI’s) to measure whether your business is thriving and not just surviving.
- Get Involved in Your Business Accounting System
Accounting is an essential part of every business and should not be seen as a sole responsibility of the finance department. Business accounting system involves planning, organizing, controlling and monitoring financial resources in order to achieve organizational objectives. Be part of these processes rather than waiting for the prepared financial statement.
Your involvement can solve a lot of problem. Firstly, you will discover if the finance/accounting department is preparing accurate account for your business. Also you will be in the position to identify any fraudulent activities and institute corrective measures as quick as possible.
- Separate Business Finance From Personal Funds
Many small-business owners usually make the big mistake of not separating business finance from their personal finance. Your business is an entity and should be respected. Some business owners take money from their business anything for personal purposes. This is wrong.
A wise entrepreneur pays himself salary from his business in order to avoid using his/her business resources anyhow. Be discipline in this aspect because it’s easy to separate your business and personal finance, but it’s actually difficult to overcome the temptation of not tampering with your business financial resources.
- Avoid Waste
Every business is guilty of wasting at least some time and money. Whether intentional or unintentional, waste affects business finance and knowing how to reduce waste at your business is an important part of your sustainability efforts. Business owners should be mindful of outdated processes like paper based working and employees’/third party mistakes that affect business financial resources.
I’ve seen where an employee carelessly placed a water bottle on a company’s laptops. The next day, the system was faulty and the company had to spend heavily to repair it. As a business owner, I do my best to avoid wastage at all cost. I also seek compensation to cushion the effect of employees/third party mistakes. In one of my numerous business trips, my flight was delayed and subsequently cancelled. These long hours of frustration and inconvenience coupled with the business opportunity I lost made me to seek compensation for flight delay.
A little drop of water makes an ocean just as a little waste of business resources can lead to bankruptcy. You can only achieve effective financial management if you consciously make it a priority.
Richard Agu is a Researcher, Entrepreneur and Freelancer, passionate about entrepreneurship and self-development. Currently, Richard writes for Entrepreneur.com, Goodmenproject.com, among others. Follow him on Linkedin.com by clicking here now.
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