One important thing you can do at the start is lay down a good financial plan, which will grant you control and management of your cash flow towards realistic goals and make informed decisions that could have steered your business toward success. Here are some fundamental financial planning tips to keep your small business on track, and ready for future opportunities and challenges.
Set clear financial goals
Setting financial goals is the backbone of any good financial plan. The goals may range from specific percentage increases in revenue to new market penetrations or margin enhancements. First, establish short-term and attainable goals that will direct your business for the near future; then outline your long-term objectives as representative of your greater vision. Measurable financial milestones can be set to review your progression from time to time and make changes where needed.
Invest in software
It is a great idea to invest in financial software such as Runway Financial to enhance your small business’s efficiency in automating all sorts of financial activities, including accounting, invoicing and payroll management. When looking at this Runway Financial review, you will see the benefits related to having a certain set of tools through which your financial records can maintain accuracy and speed. The investment doesn’t just simplify financial management but provides real analytics for strategic decisions in real-time. Although software can be an upfront cost, it is well worth adding Runway Financial to your financial toolbox due to the long-term time it saves and the accuracy.
Create a detailed budget
A comprehensive budget allows you to apportion funds accordingly and ensures that all vital expenses are covered while limiting unnecessary expenses. List all the sources of revenue, then classify your expenses into fixed and variable costs. Make a projection of the cash inflows and outflows you expect to derive. The forecast will enable you to maintain your money flow and keep you ready to meet any sudden changes. Revisiting your budget from time to time and amending it to suit the changing dimensions of your business is an essential requirement for your company if it has to be on a sound financial footing.
Manage cash flow carefully
Cash flow is the lifeblood of any business and keeping track of it is part of maintaining good health. Monitor the cash flow very keenly to keep track of your business’s liquidity and avoid any shortfall at any time. Cash flow management means closely monitoring accounts receivable, ensuring timely payments by customers, and eschewing unnecessary expenses. According to the Runway Financial review, cash flow can be better managed through the use of software. Anticipate seasonal ups and downs in revenue by planning accordingly and building a reserve fund for when times are slow.
Plan for taxes early
Taxes are inevitable and proper tax planning will save you a lot of money and headaches. Setting aside funds on a regular basis for paying taxes means that when the time for taxes rolls around, you’re ready. Educate yourself about tax deductions and credits to which your business may be entitled office expenses, travel, or employee benefits, for example. It is equally very important to invest in the services of a tax professional who will guide you through confusing tax codes and maximize deductions with the goal of minimizing your tax burden by using all available, legal means.
Track key performance indicators (KPIs)
Your consideration of key performance indicators can thereby enable you to judge the financial health of your business and alter those things that have to be changed. Overall gross profit margin, net profit margin and operating expenses ratio remain some common KPIs. Through these, you will be informed about the profitability of your business, cost efficiency and expansion possibilities. Review the KPIs on a monthly or quarterly basis to make out the trends, so that you can make data-driven decisions and take timely corrective action if necessary.
Minimise debt and manage credit wisely
While debt is sometimes necessary to expand operations, wise management of it keeps unnecessary financial stress away. Limit debt by borrowing only when absolutely necessary and selecting loans whose terms are advantageous to you. Sustain good relations with your lender, as this often encourages better interest rates and access to credit at times when your business desperately needs it. Always pay outstanding balances on time so that your credit score will be good, which may facilitate easier and cheaper borrowing in the future.
Prepare for contingencies
Events such as economic slowdowns, changes in market demand and personal emergencies are unplanned and can easily derail your business. An emergency fund for your business will see you through such eventualities without bringing you off your financial feet. You need to set aside three to six months of operating expenses at a minimum. There is also business insurance against possible risks that take care of liability, property damage and loss of income.
Regularly review and adjust your financial plan
Your financial plan is a living, breathing document that moves in tandem with your business. The quarterly, or at least annual, review of your financial plan gives you the opportunity to ensure that you will be within estimate to reach your goals. If necessary, make adjustments for changes in the market, shifts in customer demand, or other developments within your business. That way, your financial planning stays relevant to support long-term success.
