Any business to be successful needs to do prudent financial management as finance is considered to the lifeline business ventures. Financial management forms the basis for making sound and strategic business decisions. Robust and prudent financial management systems ensure the financial health and well-being of the business.
The following tips if followed by the small businesses can lead to sound financial management:
Creating A Realistic Budget
It is important to create realistic budgets. Budgets help as a guide for allocating expenses on various items. The expenses incurred can be tracked with the budgeted amount and corrective actions can be taken. Following a budget ensures there is no or minimal variance of the actual spending with the budgeted amount.
Following Accounting Systems
It is critical for any business to maintain proper accounting systems and procedures. Procedures like taking quotations from multiple vendors for procurement, proper capturing of bills and invoices, bills verification, account reconciliation etc. should be followed without fail. Accounting systems help track the financial expenses and inflow, based on which the management can make informed financial decisions. These financial reports also reflect the financial health of the business and the corrective actions which the management can take.
Distinguishing Between Personal and Business Finances
It is of utmost importance to distinguish clearly between the personal and business finances. Both these accounts should be kept separate and should not overlap which may impact the finances of the business negatively. If a business owner delves into the business finances to fund his personal need, then it can be detrimental to the business.
Overhead Cost Management
Overhead costs can prove to be disastrous for most small businesses. Businesses mostly do not keep a close tab on the overhead costs, which can be fatal for them in the long run. The business operations should use minimal resources and run on a lean structure instead of an inflated and lavish manner. Unnecessary expenses live hiring exorbitantly priced office spaces, latest and top of the line computers, luxury furniture, and gadgets etc. should be avoided as they put an unreasonable strain on the financial health of the business.
Close Monitoring of Debts Receivables
The debts receivables should be closely monitored. Many clients will pay late and they need to be followed upon for payment. If not carefully monitored and managed, the debts receivables will put a strain on the business finances and consume resources which were meant for allocation to other account heads.
Managing a small business can be a demanding proposition. Such businesses need to be very prudent in financial management to ensure that they do not turn financially unviable and insolvent at a later stage. Sound financial management will contribute significantly towards achieving sustainability and growth of the business venture.