Well-managed business finances provide an easy snapshot for potential investors, partners, and donors while also providing a mirror from which to glean what is working and what is not and where to prioritize resource allocation. Both of these aspects are important to any business but especially to entrepreneurs on the iterative path of innovation and experimentation, growth-seeking, and future planning.
Here is some advice on managing your business’ finances:
- Develop a financial reporting structure. A system that includes metrics, cost reviews, and time analysis keeps entrepreneurs apprised of where all resources are going and the impact of each input. Where to start? Begin with the very basics of bookkeeping and archiving all bank statements. With this information, generate monthly financial statements that include an income statement, balance sheet, and cash flow statement. There are many software options to help save time and ensure more precise bookkeeping.
- Set goals. Setting financial goals is more than just putting forth an amount of revenue to attain by a future date. There are many other aspects of the business that impact or relate to revenue, each with their own metrics that can make or break success towards reaching that overall long-term financial goal. These areas can include hiring and workforce, customer satisfaction, technology adoption, and marketing goals. Similarly, realizing the short-term goals involved in achieving a long-term goal makes it more attainable. For example, cutting expenses in one area of the business by x% over the next 2 months may bring the business closer to the projected revenue goal.
- Budgeting and reducing costs. This brings us to another major factor in managing finances – remembering that financial management is about how businesses spend their money as much as it is about profit. Running out of money is one of the most common and surefire ways a business fails. There are a lot of ways entrepreneurs can cut down costs like using independent contractors, purchasing used equipment, sharing advertising space with neighboring partners, and saving the high expenses of rent or mortgage by utilizing shared short-term office suites.
Getting a business off the ground is a lot of work as is keeping it afloat but it doesn’t have to be tumultuous, unpredictable, or mysterious. Sound financial planning, goal-setting, and budgeting set businesses up for success keeping an ongoing pattern of growth with preparedness for setbacks.