Managing a Business Financially the Right Way

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Good financial management is among the top qualities a business needs to have to succeed. Whether be it a small start-up company or a Fortune 500 corporation, financial management is at the heart of business success. Below are some tips to help you out.

Track Cash Flow

Businesses deal with money going in and out all the time, this money that moves through a business’ coffer is often called cash flow. It often begins through companies creating an expense, through spending for the production of their products, and once their products are sold, it becomes an income. The income then is used to pay for further expenses such as a mortgage, salaries, loans, and production costs. This crucial cycle repeats and is what keeps business running.

It’s important to keep a good rack of this process as this is what will fuel your business to continue forward. There are two major types of cash flow: positive cash flow and negative cash flow.

Positive cash flow is when the income exceeds what you need for expenses, commonly referred to as profits. This is what keeps a business alive and needs to be maintained if you don’t want to go out of business. Wise pricing and cost-cutting measures help increase positive cash flow. Having a consistently expanding client pool helps in increasing profits.

Negative cash flow is what happens when the business’ available resources fall short of the current requirement. This could be because of a late payment from a customer or having to repair or buy new equipment. Moments like this are an inevitability in running a business but are not always a serious problem, especially if wise financial planning is employed.

For smaller companies, it’s best to keep a monthly track of your cash flow. This will help you foresee moments where you might be in a state of negative cash flow, and allows you to plan ahead.

Take Good Care of Your Business Credit

Just like individuals, businesses have the capability to qualify for loans and similar forms of financing. And much like individuals do, businesses have credit scores to take care of. It can take up to three years, possibly more, to build good business credit, so it’s best to start now.

The first step to improving your business credit is to check your credit report. It’s necessary to know your score to have a figure to work with and glean information on how to potentially increase your score. Your credit report should also include accounts that might be negatively affecting your score, and if there are any disputable figures on the report. Another way to take good care of your credit is to pay your bills on time and always be on top of your banking. Decreasing your credit use ratio use helps as well, which can be done by paying off any balances or simply having an increased credit limit so it would not reflect a high ratio all the time.

woman at the cash register

Create an Efficient Billing System

Before an eviction lawyer sends you a letter because you keep forgetting to pay your business mortgage on time, set up a billing system that efficiently pays all of your creditors. Paying late on bills is not a good look for any company, and can turn off potential partners. It is also a sure way to decrease your business credit score.

Another way to around this is to have an automatic billing setup with your business debit card, and then look over your bank reports and bills later on to make sure everything checks out. There are tons of financial software that allows you to allocate monthly funds to each service provider, ensuring that you don’t miss a single payment. These often separate from a bank account, requiring you to put money in it to complete transactions. While that may sound like a lot of work, you have more control over your business’s finances and is often a solution many other companies employ.

Always Compare and Contrast Cost with Efficiency

Part of running a business is the constant need to purchase items that are needed for the business to function. When done haphazardly, this can be a major money sink. To be cost-effective with your purchases, take a long and analytical look at the items your business needs. Sometimes, buying in a bigger bulk will help save money, at the cost of requiring storage space to store them in. It’s best to balance the costs incurred to potential efficiency gains. Another way you can save money is by deciding whether you need to purchase used office furniture. Adequate quality second-hand office furniture is very affordable, and if your business uses its furniture sparingly, then secondhand might be a good financial decision.


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