Analysts always seem to differ when it comes to reflecting on what percentage of new businesses end up failing. However, one point that they do agree on is that cash flow problems are most often at the heart of business difficulties. More often than not, it's a failure to make two ends meet that brings a company to it's knees.
It's essential, therefore, to make sure your financial assets are correctly managed. Without a close eye on how your money is moving, you won't be able to spot liabilities or predict future problems.
Let's take a quick look at how to avoid financial meltdowns.
Step #1: Assign a financial manager
One of the many reasons a task gets left off the table is that nobody was quite sure who's responsibility it was in the first place.
Whether you manage all the finances yourself, let a team member take care of it, or outsource it to a third party, make sure that participants are clearly identified and fully briefed on their responsibilities.
Step #2: Choose the right accounting software
Good financial management is all about staying organised; by keeping every penny accounted for you'll be able to maintain a firm grasp over your company's financial direction. The best way to do this is by finding high-quality (and appropriately priced!) accounting software.
A great accounting platform will allow you to monitor income and outgoings, track static vs. variable costs, produce simple cashflow reports and even send electronic invoices. Platforms can vary a lot in terms of cost, so make sure you search carefully for the right one for you.
Step #3: Differentiate your costs
When you differentiate your costs between operational outgoings (required for the day-to-day running of your business) and capital outgoings (purchases made to help your business expand), you'll put yourself in a great position to start optimizing your expenditures. If you're paying too much in operational costs, for example, you may find it difficult to start scaling up your business. It may be time to cut back on day-to-day expenditure enough to allow some investment in growth.
Step #4: Monitor profitability
It's a general rule in life that what isn't expanding is contracting, and this is especially true for your cash flow. In order to keep your business healthy, it's important to maintain a macro-overview of how much money you're bringing in versus your total outgoings. Without this insight you could find it difficult to make smart decisions for when and where to invest your money for growth.
Step #5: Find a business mentor
This one could really apply to any aspect of entrepreneurship, but it's especially crucial for finance - the lifeblood of your business. An experienced mentor can help you decide where the best places are to spend your cash (my opinion - invest in people!) and where to look to cut corners and make savings.
There's five quick steps to get started managing your finances. It's a long road to mastering cash flow, but check these five off your list and you'll be in a great position going forward. If you have any questions about finance for your business feel free to drop us a line at the studio.