If you’re overwhelmed about managing your small business’s finances, Pursuit can help. Here are three essential tips for great financial management:
Tip 1: Keep Clear and Accurate Records
The first tip, keep clear and accurate records, is critical because if you’re not basing business decisions and strategy on sound information, you’re putting your business at risk of failure. The most efficient way to keep accurate records is to choose a bookkeeping system that works for you and for your business – you don’t want one that’s too complex or difficult to understand but similarly, you need something more useful than notes in a notebook. QuickBooks® is popular bookkeeping software that makes it easy to organize expenses and control your cash flow.
Another good practice is to set a schedule for entering data and stick to it. By doing this daily, you’ll avoid backlog and have a better understanding of your business’s cash flow. It can also be helpful to include notes for your entries, particularly if there are opportunities, issues or events that significantly impact your business. It’s also highly recommended that you review the information with a bookkeeper or accountant on a regular basis to ensure that both of you are on top of your business’s financials.
Tip 2: Create and Use Three Essential Financial Statements
The second tip is to learn to create and use three essential financial statements: the balance sheet, the profit and loss statement, and the cash flow statement. The balance sheet helps you understand your financial position, particularly what the company owns and owes (assets and liabilities). A profit-and-loss statement measures a company’s sales and expenses during a certain period to show where the business stands as it pertains to operating, investing and financing activities. A cash flow statement shows how changes in your business affect cash and cash equivalents.
You can create these statements with QuickBooks or other software, or with your business’s bookkeeper or accountant. As a small business owner, it’s your responsibility to understand and read these statements, and neglecting this can negatively impact your business. Taken together, the three financial reports can explain how well your business is running.
Tip 3: Use Financial Statements to Make Decisions
The third tip is to use the financial statements to drive strategy and make decisions. For example, if you realize that your business has excessive liabilities, you can develop a plan to reduce or eliminate them or, if necessary, refinance your debt to improve cash flow. Conversely, if you find that you have an abundance of cash on hand, you may want to explore growth opportunities.
Analyzing financial statements can also help you determine how much working capital you need, which is used to fund business operations. If you find that you don’t have enough working capital to appropriately fund your business, you may need to consider seeking outside financing, such as a small business loan.
Each of these steps – keeping clear and accurate records, creating and understanding essential financial statements, and using the information to drive strategy and decisions – supports the others, as well as your overall business success. For more tips on how to manage a small business and information on small business loans and guidance to help you grow your, visit Pursuitlendring.com or contact our Business Advisory Services team.
