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6 Effective Financial Management Strategies for Your Business

Finnegan Pierson Sep 20, 2019
Here are a few important tips for you so that you know how to successfully manage finances of your company, to be more effective.
A business cannot run without money. That is why before you opened your company, you had to gather finances and purchase a few office items. Interestingly, only 2 out of 10 new businesses make it past the first year. What makes these ventures fail?
The most common reason is poor financial management. These firms run into cash flow problems and eventually close down.

Smart Strategies You Can Use to Manage Your Firm’s Finances

To avoid failure and make sure that your business always has the cash to operate, use the following tips.

1. Keep Track of the Finances

The first step to financial freedom is monitoring. You should know the amount that your business brings in every day. If the business is still small and you only have one branch, you should be there during normal operation hours.
That way, you can easily monitor the cash flows. Keeping track of your finances doesn’t just involve the cash at hand. You should also know how much money was deposited in the business account that day.

2. Monitor Your Debtors

If you operate your business for a certain time, you build trust with your return customers. Since you trust the clients, you can allow them to buy goods on credit. Make sure you write the name of the debtor and expected repayment date.
Always remind the debtor until they pay you back. Bad debts can be bad for your business since they deprive you of cash. If possible, avoid giving goods on credit.

3. Know Your Expenses

It might appear a simple task, but most businesses don’t know how much they spend daily. Some business owners assume a figure because they think it isn’t that big. You’d be surprised to learn just how much cash goes out of your business every day.
Those ‘tiny’ miscellaneous expenses can add up to a huge figure. You should physically monitor your business regularly and have an estimate of how much is spent. Then, make sure that your daily sales targets are always above this figure.

4. Update and Safeguard Your Financial Records

Whether you’re recording your transactions in physical ledgers or on accounting software, keep those records safe. Use a password for the software so that these records are not accessed by any unauthorized personnel.
You should update the records daily. If you’ve bought new stock, record it. You need to record the transactions so that they can be later analyzed for decision-making purposes. This technique is called r2r or record-to-report.

5. Pay Taxes on Time

Paying taxes timely is a technique that avoids unwanted expenses. If you keep updated records of your business transactions, it should be easy to file taxes on time. IRS is very strict on taxes. If you delay filing returns, you can be fined.

6. Choose Your Funding Sources Wisely

You can use credit to leverage your business and increase earnings. Despite being good for your venture, credit can cripple your firm. If you go for a loan that charges a high-interest rate, you reduce your expected earnings. Thus, choose your funding sources wisely because they could mean difference between success and failure.
Use these strategies to transform the way your company handles finances. You will reduce your running costs and improve cash flows. Finally, you have to keep practicing the strategies till they become a habit. Some entrepreneurs implement new financial management techniques, only to revert to the old ways after a while.