A key aspect of running your own business is understanding what you can and can’t control.
You may not have any control over the world’s economy, although you can prepare your business finances to handle anything it may throw at you.
With the unknown always just around the corner, it’s important to always be prepared for any situation that may come your way.
Here are some simple steps to help you stay on top of your finances.
A crucial part of sensible money management is staying organised, and this all starts with a clear plan and predefined goals. Having these in places will also provide your business with direction.
A plan will offer you a clear understanding of your current financial situation, taking into consideration your budget, expected profit and loss and estimated cash flow.
Manage your cash flow
Using a cash flow statement, you can keep track of the money coming in and going out of your business. By keeping track of your income, you can plan your expenses. Planning allows you to feel comfortable that you will have enough money to pay your bills.
Also, ensure you have a regular stream of cash flow coming in so that you have enough cash on hand for three to six months of expenses. This will provide a buffer if you were to run into an unexpected downturn and would hopefully not have a major impact on your business.
Suggestions on ways to increase your cash flow include, reducing invoicing payment terms meaning customers will pay faster, negotiating with suppliers to change payment dates allowing you to align outflows and inflows better and generating working capital through your current commercial assets.
Having a rainy day fund
On top of good cash flow, it is also important to have a rainy day fund for when large emergencies arise. Having this money set aside will provide you with time to reassess and find alternative ways to keep your business afloat if need be.
This buffer will also hopefully help you avoid going into debt, making it a lot easier to come through the other side.
Beware of tax traps
It’s always a good idea to collect tax at the time of sale, regardless of if you’re selling a product or a service and put it aside so that you are prepared come tax time. This will mean when EOFY approaches you won’t find yourself scrambling when these funds are due.
A common mistake made by new businesses is not budgeting for tax at all. If you are not prepared, you may receive quite a shock once the tax bill comes in, requiring you to dip into your emergency fund. If this happens, it means you’ve overspent and need to reassess your budget.
Whilst 2020 proved to be a turbulent year for many, there has been a valuable lesson learnt in expecting the unexpected. By implementing some simple strategies, you can future proof your business finances for the next pandemic, market downturn or whatever unknown event may come along.
If your business is looking to generate working capital, Morris Finance can raise funds from a number of commercial goods. Our team of finance specialists will provide you with information and access to financial solutions that will allow your business to get ahead. Contact us today on 03 5223 3453 to discuss your options.
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