Understanding Small Business Financial Management

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Are you part of the 30.2 million small businesses in the United States today? Success for businesses is grown with a mix of dedication, passion, and proper financial management. Although the latter can be unenjoyable, providing keen attention to financial detail is crucial. Not only will these practices increase your profit, but it can also protect your bottom line and brand from any compliance and legal issues.

This guide will help you understand everything you need to know about small business financial management—helping you manage your finances more efficiently.

Financial Planning and Forecasting

Financial documents are essential for any business, providing internal tracking of your revenue to prove your company’s viability to investors and other finance providers. Plus, it helps you identify and address potential issues before they arise, allowing you to make better-informed decisions about the direction your business will take.

The documents you’ll need to produce and regularly maintain are your balance sheets, profit and loss statement, cash flow statement, and breakeven analysis.

The most crucial one is your balance sheet, as it gives you an overview of your business’s financial standing at any time, consisting of your assets, liabilities, such as your bank and USDA loans, and equity. These three aspects of your business’s finances help you calculate your brand’s net worth and show to finance providers your small business has solid financial foundations.

Accounting Basics

Running a business comes with several time-consuming and repetitive jobs, such as bookkeeping, tax, and accounting tasks. These are crucial in keeping your company safe and compliant with the IRS and generating valuable information to operate your business more efficiently. Although you can use cloud accounting software to handle these tasks, it’s best to have an accountant by your side to keep your business’s financial aspect in check.

Accountants can help with cash flow forecasting, tax audits, loan applications, VAT registration, and give you a better insight into your business’s financial performance—and suggest some improvements.

Knowing Your Small Business Finance Options

At some point in your small business operations, you’ll need to seek business finances in some form, whether to deal with cash flow issues or fund your company’s growth long-term. Business financing options you have are equity financing, where investors make money available in exchange for a ‘share’ in your business’s ownership, and debt financing, where you borrow funds from a lender, and they’ll charge interest on the money you owe over time.

Other options are bank loans, crowdfunding, small business grants, business credit cards, and small business loans. When choosing finance options, ensure to think it thoroughly as one wrong move can leave you with more debt.

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Managing Debt

Although debt is a useful tool that can help startups achieve growth, small businesses often fail as they leave their debt spiral out of control, leaving them with more payments than profit. Sometimes, all it takes to ‘end’ a business is a market downturn, late payments from clients, or a dip in sales. So, manage your debts efficiently—and the best way to do this is micromanaging the little things.

From taking public transportation, refinancing, negotiating with suppliers to boosting your scores—all these can help you manage your debt with ease.

Managing and Tracking Cash Flow

Cashflow is the money moving in and out of your business over a certain period. Money continually comes in as income from consumers who purchase your goods and services and flows out in ‘expenditures,’ like rent, salaries, monthly loan payments, etc.

A lack of cash flow is one of the primary reasons why businesses fail, as even the most successful companies can quickly find themselves in trouble if their cashflow gets disrupted by unpaid or invoices. To avoid this, keep track of your small business’s cash flow every month. However, if your company is new or deals predominantly in money, like retail shops or restaurants, monitor it every week or day.

Proper financial management is at the heart of all businesses, no matter the size. Without it, even the most lucrative companies will fail. Luckily, anyone can ensure financial management with the right moves—and understanding it is the first step in managing your finances the right way.

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