As a business owner, you get involved in all aspects of your business, juggling multiple tasks to help it grow successfully.

Understanding and managing your business finances is a vital part of your success story.

Using an effective process for managing business finance frees you up to focus on the creative and operational parts of your business and keeps your staff, suppliers, customers and the tax authorities happy.

Here we outline eight of the key business finance factors you need to be on top of so you can plan and execute business operations seamlessly:

1. Cashflow – Cashflow is different from making a profit.

Businesses can survive for a while without profit but not without funds available to keep business operations continuing.

The secret to a healthy cashflow is to accurately monitor expenses and receipts to maintain a flow of funds to finance ongoing work.

The difficulty is investing in new work before you’ve been paid for previous jobs.

It’s not an easy process to manage. The latest SME Growth Index found 79 per cent of small businesses say cashflow issues cause them sleepless nights.                                                                                                                                                                   

2. Budgeting and forecasting – Accurate forecasting helps business planning so you need a budget that shows upcoming annual costs so you know when large outgoings like payroll, tax or capital expenditure are coming up.

The cashflow forecast should show all outgoings and receipts for the next few months so you know at a glance what your balance will be at any time to aid planning and alert you to any potential shortfall.

3. Purchasing and expenses – The purchasing role is vital for a business because it’s important to get a combination of good value, high quality and timely deliveries which you can achieve by developing good supplier relationships, negotiating skills and economies of scale.

The finance team should negotiate competitive payment terms and overall the small business finance function should take longer to pay suppliers than it takes to collect money from customers.

4. Sales ledger and credit control – This is the other side of the purchasing function and both are critical to business finance.

Late payments undermine cashflow forecasting and a recent survey from The Australian Small Business and Family Enterprise Ombudsman shows this is still a major problem.

Once an order is confirmed, accurate invoices should be raised and sent to the customer showing the agreed payment terms.

Phone or email your customer to check they’ve received the invoice and that it’s being approved.

A week before its due check it’s on the next payment run and confirm the payment date.

5. Credit checks – Before taking on new customers run credit checks to see if they’re reliable payers and from this information decide what payment terms and credit limit to offer them.

It’s sensible to offer short payment terms and low credit initially and gradually extend it once they’ve proved themselves reliable.

Run regular reports to check outstanding amounts on purchase and sales ledgers and chase late payments regularly.

6. Tax – Managing your business tax affairs is an important legal requirement of running a business.

Your accounting team or tax agent must ensure they follow all tax procedures and meet all tax deadlines.

The most important date is the end of February when most businesses have to file their tax return and make payments.

Don’t forget to use your $30,000 instant asset write off if your turnover is below $50 million.

7. Business finance – consider factoring or invoice discounting options for collecting customer payments that help you manage cashflow and fund operations for fast-growing businesses.

It means using a separate company who advance payment of the majority of your customer sales totals immediately with the remainder paid to you once the customer settles the bill.

Business loans like those provided by Morris Finance, debt and equity funding or investment from venture capital are all options that in the right circumstances can help your business grow.

8. Financial data systems – use technology, E-invoicing and integrate financial systems to improve the information your finance function provides.

Your accounting system, cashflow, budget and forecasting spreadsheets should be linked so when new data is input, they’re all updated.

This saves time, increases accuracy and by linking different business functions all stakeholders can see what the current situation is.

By integrating these processes into your business model you can run your core business knowing the business finance fundamentals are solid and underpin everything you do.

Understanding and being able to rely on these key business finance factors means:

• You know your recruitment budget
• You can plan spending on new equipment and marketing
• You can accurately predict receipts from work in progress
• You can plan cashflow around big planned purchases
• You have confidence that your customers can pay
• You build better relationships with key suppliers
• You can utilise business finance functions if required
• You stay within the law on tax liabilities
• Your financial systems work together to inform all business areas

Now your team can make better informed decisions for your business. You’ll be able to plan operations, new projects and growth knowing you can rely on the data to make these decisions.

Morris Finance can help your business manage its cashflow. Call us today on (03) 5223 3453.