How to ensure effective small business financial management
For small business owners, managing their business takes a great deal of time, effort and concentration, not least when it comes to finances.
With financial constraints common for most SMEs, effective financial management becomes a key part of ensuring that the business’ longevity is secure.
Part of this involves keeping business and personal finances separate – it’s all too easy to muddy the waters in this regard, which is why business finances should managed on separate accounts and credit cards.
Not only does this allow an owner to keep track of outgoings, but it also reduces confusion relating to tax regulations and HMRC requirements, although a range of help to pay services do exist to assist with any uncertainty.
A business can quickly find itself in financial difficulty without the appropriate management, especially where cash flow is concerned.
Cash flow ultimately forms the base of any business, regardless of size, and owners need to realise that season variation is likely to occur, especially in a sector such as retail.
Factoring in seasonality is therefore essential, as a business will need to have enough finance and stock available during peak and quiet periods.
A failure to do this could leave the business facing insolvency or requiring restructuring methods in order to keep trading.
Having strategic contingency plans in place can provide possibilities in such instances, while a business may also want to look at its alternative finance options to meet its requirements.
A key aspect of understanding business cash flow allows for appropriate planning so that productivity can be enhanced and levels of risk reduced.
Managing the levels of available finance is also vital, as maintaining a budget is a pointless exercise if it cannot be implemented – the focus for any SME owner should always be about operating with what is available.
However, a budget should only ever act as a guide, as any number of unforeseen factors may influence the levels of finance that are available.
Provided that finances are carefully managed, owners can protect their business in the long-term and ensure that there is a sound financial footing from which to grow.
By Phil Smith