Are you new to the business world? Is becoming an entrepreneur easy? In today’s fast-growing world, everyone looks for a steady ground to establish and grow their business. One day you might find yourself surfing through resumes of potential candidates for recruitment. Whereas the other minute, you can feel lost in all the billings and paperwork. Unfortunately, becoming an entrepreneur is not as easy as it sounds. From day-to-day operations, marketing practices to managing finances – entrepreneurship comes with a lot of responsibility.
Surprisingly, marketing and human resource departments give you the leverage to learn from mistakes. But when it comes to finances, you can’t test and experiment with money. As a result, many companies encounter financial challenges due to inadequate fund allocation, incorrect financing decisions, etc. Likewise, some businesses run out of cash despite increasing sales and profits. These challenges explicitly arise because of inadequate data management.
Believe it or not, finances are the engine of every business operation since it holds power to keep the business running. And luckily, improving the company’s financial health has nothing to do with luck. All you have to do is understand business pain points and maintain records. Here we are unfolding some ways to tackle challenges that arise in keeping the financials of a company.
1. Follow International Accounting Standards
Usually, people running private companies don’t understand the importance of financial regulations. Sometimes, they generate financial reports monthly, and at times, they don’t create reports at all. When you register the business with the state, you have to ensure compliance with all regulatory standards. In addition to hiring accounts to bring your business on track, learn the ropes yourself. Before calling the shots, apprehend what is an accounting degree and how it can help manage finances.
These are a set of rules that every company has to follow while maintaining financial data. Businesses must record every minor business transaction and prepare financial statements. Income statement puts all sales, purchases, income, and expenses in one place, helping companies determine their profits. Similarly, the statement of financial position throws light on business performance, comparing assets with liabilities. Aligning your financials with these standards can streamline operations, giving you a clear idea regarding where your business stands.
2. Record Every Expense & Income
Does your office need stationery? You may not mind paying a few bucks from your pocket, but it is not a wise decision. It can make your business appear more substantial than it is, giving you a false image of its performance. Thus, whether you are purchasing a desktop or paper clips – record every expense in the books. Similarly, keep track of all your business income. In case you have rented out any office branch, record rent receivable in the income statement.
Likewise, if you were a part of a joint venture or sent any consignment overseas, refrain from putting commission in your pocket. It is your business income, and failure to report can result in penalties. After all, every company has to go through an audit procedure. Moreover, if you wish to avoid financial setbacks due to unforeseen situations and expenses, open a general reserve account for emergencies. You can deduct some percentage from your profits, transfer it to this account, and secure your business.
3. Prepare Financial Budgets
Today, almost every business complains of running out of funds due to overspending. Although operating a business requires money, entrepreneurs have to manage expenses adequately. So, how about you prepare budgets? Examine your sources of income to get an idea about how much money will come into the business. Include all investment returns, accounts receivable, and sales. Simultaneously, make a list of all fixed and variable expenses – depreciation, rent, loan repayments, salaries, utility bills, etc.
Although expenses change every month, listing together helps in prioritizing expenses, eliminating unnecessary spending. Once you create an annual budget, you will get an idea about how much money you need. For instance, if you project $100,000 sales but only generate $30,000 in 15 days, motivate your sales team to bridge the gap. Without goals and targets, your business cannot succeed. Budgets develop accountability and efficient fund allocation, helping you make smarter financial decisions.
4. Collect & Make Timely Payments
Have you heard of cashflow problems? At one point in time, every business faces this financial challenge. Despite rising revenue and profits, managers don’t have sufficient funds to foot bills for routine expenses. It happens when companies heavily rely on credit sales. Do you know what credit sales are? Clients make purchases with a promise to later – after 3-6 months. It does reflect positively in the income statement, but cashflows suffer significantly. After all, there is the money going out from the business regularly – outflow, but not coming in – inflow.
In addition to setting a limit on credit sales, align your payable with receivables. Instead of using your cash sales to pay back suppliers, use that money for business expenses. And utilize your receivables to repay your payables. If your clients take six months to reimburse, set similar credit terms with your supplier. It would close the door for cash flow and liquidity problems, ensuring your business has sufficient cash-in-hand at all times.
5. Leverage Accounting Tools
From tracking receipts, securing invoices, to filing taxes – organizing paperwork is never easy. Alongside exhausting resources, it impacts the productivity of the organization. Employees have to spend hours juggling between files to find customer details. You can either start organizing paperwork or leverage accounting software. It lets businesses store all documents offline or on cloud servers, improving accessibility. Although you can scan receipts and invoices, it is better to utilize the software features to save time and additional effort.
These days, Sage and QuickBooks are two famous accounting software. In Sage, you have to record business transactions, and by the end of the month, it would automatically create financial statements. In comparison, QuickBooks let your store’s billing address, customer details, and make payments online. Moreover, it also assists with payroll management. After all, any errors relating to wages or tax liabilities can put your entire business into hot water. These tools calculate the final salaries after deducting tax liabilities and social security payments, fulfilling all legal obligations.
Undoubtedly, businesses encounter financial challenges at some point in time. It doesn’t mean your entrepreneurship journey has come to an end. Instead, it is time to understand your business pain points and deal with them. Firstly, figure out the root causes of financial constraints – insufficient capital, overspending, decreasing revenue. Use accounting standards, prepare budgets, and record data efficiently to tackle overcome these problems.