Essential Financial Guidance for Small Businesses
Running a small business is hard work, but it can be incredibly rewarding. However, one of the main reasons why small businesses fail is due to a failure to understand financial management.
In this blog post, we are going to look at financial guidance for small businesses. We will discuss cash flow, accounting, taxes, planning and forecasting, and how invoice financing can help you overcome any financial hurdles your business may face.
How to Achieve Small Business Financial Success.
Small business owners need to be aware of their financial obligations and it is crucial that they seek professional guidance to ensure the financial success and longevity of their business.
Maintaining a Healthy Cash Flow.
Cash flow is everything in a small business; if money is not coming in regularly, the business will quickly get into trouble and become insolvent. Even the most successful businesses can fail due to poor cash flow.
A business is said to have a healthy cash flow and liquidity when it has enough money to meet its financial obligations as and when they fall due. However, there are many reasons why a business might experience unhealthy cash flow. This can include not invoicing customers promptly/correctly or failing to chase up outstanding payments. Late payments and extended payment terms from clients will quickly have a significant impact on cash flow availability.
Every business should keep at least a monthly track sheet of its cash flow, enabling them to make financial decisions accordingly and spot any potential issues early on. If a business is struggling with cash flow, there are a number of ways to improve the situation.
Tips on managing your business cash flow:
- Know what your cash flow is: create a cash flow statement and forecast. You can do this weekly or monthly. This will help you to make financial decisions and spot any potential issues early on.
- Improve your credit control: chase up late payments. You can offer discounts for customers who pay invoices promptly but be aware of the significant impact this can have on profitability.
- Invoice regularly: Do it as soon as you can, don’t make it a monthly chore.
- Be clear on your business payment terms: make sure you are clear about your payment terms from the outset and that these are clearly communicated to your customers not just on your invoices.
- Choose who you do business with: try to avoid working with businesses that have a history of late payments and poor credit.
- Consider invoice financing: if your business is struggling to access its cash quickly, you could consider invoice financing. This is where a financial institution will advance you the money owed by your customers, so you don’t have to wait for them to pay.
General Business Accounting.
Business accounting is another area where small businesses need to at least have a working knowledge. A proactive relationship with a qualified accountancy professional is also vital to ensure you understand and act on the numbers being produced.
Running your own company can entail a slew of time-consuming yet unavoidable bookkeeping, tax, and accounting duties. Although they may be difficult, these activities are essential for not just keeping your business secure and compliant in the eyes of the taxman but also for generating vital information that you can utilise to operate more successfully, but it doesn’t mean you have to do it all. Investing in the right advisor is time and money well spent because understanding business taxes and what should be paid or mitigated can be complicated.
Business Taxes.
On the subject of business taxes, it’s important that small business owners seek professional guidance early on. The amount of tax a business has to pay will depend on a number of aspects including the type of business, nature of its expenses and of course its profits or losses.
There are a number of different taxes that businesses have to pay, including income tax, corporation tax, value-added tax (VAT) and payroll taxes. Businesses also need to be aware of the deadlines for filing their tax return and paying any taxes due. Failure to meet these deadlines can result in financial penalties. Employing the services of an accountant will ensure that all business tax obligations are met with no nasty surprises.
Forecasting and Future Planning.
Forecasting is an important financial tool for small business owners. It allows you to estimate future income and expenditure and make informed decisions about how to grow your business.
Once you have created your forecast, it is important to review it regularly and make adjustments, as necessary. This will help ensure that your forecast is as accurate as possible and that you are making the best financial decisions for your business. Forecasting is vital for all businesses, without a clear idea of future income and expenditure, it’s difficult to make informed financial decisions.
Small Business Additional Finance Options.
At some time during the growth of your small business, you’ll most likely need to seek business finance in one form or another, whether it’s to address short-term cash flow concerns or longer-term development. There are several different ways for businesses to obtain funding. The most common include bank loans, overdrafts, business credit cards and invoice financing.
Traditional Bank Loans – Bank loans are one of the most popular ways for small businesses to raise finance. They’re typically used for larger purchases such as property or machinery or to help start-up businesses. The application process can be time-consuming and complex, and you’ll often need to provide security in the form of business or personal assets and a personal guarantee.
Overdrafts – An overdraft is an arrangement with your bank that allows you to withdraw more money from your account than you have deposited. It can be a useful way to cover unexpected costs or delays in receipt of income, but it’s important to remember that interest and charges can quickly add up if you’re not careful. An overdraft limit can also struggle to keep up with funding needs in times of growth and renegotiating an increase is not always straightforward or available. Traditionally, this was the way most businesses funded growth and cash flow issues.
Business Credit Cards – A business credit card can be a helpful, though expensive way, to spread the cost of purchases or manage cash flow. Some come with a range of rewards and benefits such as cashback and interest-free periods, however, it’s important to remember that you’ll need to make regular repayments from cashflow with high rates for debt that is not cleared monthly and there’s a risk you could end up with debt that is not repaid, with only monthly minimum payments made if you’re not careful.
Invoice Financing
Invoice financing is a type of funding that allows businesses to unlock the cash tied up in unpaid invoices. It’s a flexible and convenient way to improve your cash flow. Invoice finance gives you extra working capital and a much-needed cash injection to help grow your business as it is a facility that grows as you do, providing more and more funding as your sales increase.
In uncertain times, businesses have to be nimbler and make decisions quickly to stay ahead. Invoice finance is one way to help give businesses a little breathing room when it comes to cash flow.
Cash flow is the lifeblood of any business and without a good understanding of financial planning, forecasting, and accounting, businesses can quickly become insolvent. Invoice financing can be a great way to ensure a healthy cash flow and business owners should seek professional advice to ensure the financial success of their business.
For more information on invoice finance, contact us today.
