Access to accurate and timely financial data is vital for any business, Companies that follow structured financial practices consistently outperform other businesses. This article outlines 5 financial habits that will equip you, to get your business finances right.
We have observed that during growth phase, the focus of most SME and startups is in setting up the core operations and building the core team. Business leaders do not find, the requisite time to pay attention to business finances.
Like any other business, for SME and Startups too, ignoring financial management is disastrous. This leads to cost and margin pressures, crash crunch and even losses.
As part of business growth strategy businesses must adopt right finance management right from the early stage ensuring good financial health of the business.
As a business consulting company In-Unison helps business of all sizes adopt and nurture right business practices
The following five financial habits will give business leaders a new perspective to better manage the current business and also prepare for the future,
1) Right Financial Structure
Cost and margin analysis is vital. Availability of cost and margin data directly impacts the business competitiveness.
Preparing chart of accounts can help businesses access this data. Chart of accounts segregate all financial transactions under the income or expenditure head.
This first step in financial management allows the business leader to track & monitor individual business expenses and revenue, across products and services.
2) Forecast & Budget
Next step is the annual planning process. Every year the owner and key members must create sales forecast and expenditure budget.
Forecast and budget provide guidance & targets for managing the finances .
Sales forecast and budget should be detailed on two aspects
A) Category wise, across Income and expenditure
B) On Monthly basis.
The sales forecast should include addition of new product/ services if any, as well as addition of new customer segments, while on the other hand the budget should cover additional investments or expenditure for gaining higher capacity/capabilities.
3) Regular review
Once the forecast and budgets are defined, they need to be tracked against defined chart of accounts to see the variances if any. Reviews help track the direction of business and take corrective action at the right time.
Failing to track the progress of plans is a recipe for disaster.
Monthly reviews help track whether right efforts are being put in, check whether desired actions are being performed on sales & marketing front. Review of budgets will ensure costs are kept in check.
Month on month reviews ensure actions are translating into results, quarterly and half yearly review can provide inputs for course correction and refinement.
4) Attention to Taxes & Debt
Paying taxes on time and fulfilling debt obligations are vital to health of any business. Any delays in fulfilling these obligations directly reflects cash flow problem in the business.
Business owners tend to defer tax payments and delays loan and interest repayment at sign of any cash crunch.
Paying taxes on time not only ensures that business doesn’t have to pay interest and penalties but creates a good compliance track record.
Good financial track record is vital in doing business with large corporate who are particular about compliance. Also for future business growth a good finance track records help at the time of raising finances from bank and investors.
5) Strengthen the balance sheet
One of the crucial aspects of business growth is the ability to raise money to tap right opportunities at right time. Banks finance against a strong balance sheet, reflecting assets, collateral, stocks and order book.B Showing less revenues or profits to avoid taxes might feel like a smart move. but it certainly proves problematic in the longer run. Absence of higher incremental revenues and profits limits company’s ability to raise finances.
Asset heavy and light on liabilities is sign of a healthy business. However it’s okay to have higher liabilities as long as it is funding business expansion.
A successful and smart business owner takes keen interest in understanding and managing finance regularly and don’t leave everything to the CA or the finance person to manage. Use these 5 financial habits to get in control of your finances and business, today!
At In-Unison Financial management is vital part of our consulting assignments. Our Run Business @Ease and Grow Business @ Ease Models have finance management as one of the core pillars.