5 Ways to Improve Your Business Financial Management

Ongoing financial planning and forecasting are critical for business growth. But as a small business owner, it can be difficult to do any of this thoroughly and efficiently. Maybe you’re not a numbers person or feel that it takes time away from you actually running your business.

Now, managing and analyzing your business finances doesn’t have to be a frustrating process. In fact, by proactively looking for improvements, you can set yourself up for more effective and fruitful financial management.

Here are a few tips to help you better manage your business finances.

1. Invest in financial management technology

There is no shortage of accounting and financial technology (fintech) apps on the market. These advanced platforms can help small businesses, startups, and solopreneurs automatically log transactions and monitor account balances. Many of these solutions can also prepare tax forms or integrate with tax prep software.

Either way, there’s no excuse not to invest in one (or several) of these resources. By doing so, you’ll have more consistent control over budgets and expenses while also devoting more time to your company’s more mission-critical, revenue-generating tasks. Do your research, determine what accounting-related tasks you can optimize, and start testing out solutions.

If you are firmly against using any sort of accounting software, you should still be tracking things in spreadsheets so you can generate simple reports. This is a relatively easy step; banks, for example, usually let you export financial statements as spreadsheets. That being said, it could take enough time that it’s worth outsourcing to a freelancer for data entry and verification.

2. Choose and stick with an accounting method

There are several ways to track your business financials, and businesses typically use either accrual or cash methods. The difference between the two is centered around when you change the balances. The cash method records the payment when it’s received, whereas the accrual method does so on the date of sale.

The accrual method is a more accurate snapshot and may help with taxes, but it also runs the risk of tricking you into thinking you have more money than you do. Meanwhile, the cash method provides a clear picture of current and historical cash flow, but it’s a lot harder to forecast from so it also has drawbacks.

Regardless of which method you choose, it’s important to stick with it. You can’t simply pick and choose each year based on what’s more beneficial to the business. That’s a recipe that could quickly lead to losing transactions and creating unintended accounting fraud that can get your business in legal trouble.

3. Understand your financial statements

You don’t need to be an accounting expert to run your business. However, you should at least have a general understanding of what your financial statements are, how they function, and how they interact with one another. The three basic financial statements to start with are your profit and loss, balance sheet, and cash flow statements.

The profit and loss statement provides an overview of how your business is performing. The balance sheet is a basic snapshot of the health and stability of your business based on your assets and outstanding debt. Your cash flow statement tells you if you are liquid enough to keep running and pay your bills.

Separately, these statements are great tools for understanding specific aspects of your business. Together, they provide a clear picture of how you are performing that makes it far easier to make smart and strategic financial decisions. Taking the time to understand them makes it far easier to start creating forecasts and proactively prepare for different scenarios.

4. Automatically generate reports

Now, it can be difficult to analyze these financial statements if you’re spending all your time putting them together. It can also be frustrating to cross-examine these statements when viewing and updating them separately. Not to mention if you want to bring in specific payroll, CMS, or other reports to add more color to your financial review.

So, rather than handling these things separately, it is often more valuable to leverage a tool that can aggregate and automatically generate financial reports. This makes it far easier to identify top-level opportunities through a singular dashboard and then dive into the individual financial statements.

Having this functionality allows you to fine-tune what’s presented, easily share information, and in some cases even make adjustments directly from the report itself.

5. Consult an accountant

Even armed with all the latest tools, accounting is still difficult and tedious to manage. That’s why accountants are required to have different certifications based on their exact specializations because of how much they can vary.

While your business may be too small to justify having a full-time accountant on staff, outsourced accounting services can be a great way to get an à la carte experience on an as-needed basis. You can find various services and freelancers that specialize in niche areas like accounts payable/receivable, bank reconciliation, payroll, taxes, and more.

Accountants can also earn their cost in savings by understanding current government programs, rules, and regulations for the current tax year, along with upcoming legislative changes. Major events like the COVID-19 pandemic enacted a slew of government-funded programs, and you may not realize how many of them apply to you. Of course, even with an accountant, you should still get to know your numbers.

Review and refine your financial management process

Keeping track of your financials can be difficult as the business grows. But modern tools enable solopreneurs and small teams to achieve more than ever before, and financial management is no different.

When you understand your historic and current performance, you can more accurately predict the future and ensure that the organization’s financial health is sustainable. Just be sure that you revisit the steps in this process semi-regularly. You may find there are further opportunities to refine your practices and find further growth opportunities.

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By: Dr. Anthony Decoste
Title: 5 Ways to Improve Your Business Financial Management
Sourced From: articles.bplans.com/improve-financial-management-practices/
Published Date: Fri, 14 Oct 2022 11:34:00 +0000