Financial Management: Best Practice for SMEs

Planning is vital to ensure your business’s success. There’s nothing surprising in that, but for many, the financial plan is last on the list and the one plan that gets left to stagnate once it’s approved. The key to any plan is to constantly keep it refreshed and be proactive, not reactive when it comes to strategic direction. Setbacks will happen, the only question is, will you be ready for them?

A good financial plan should influence every part of your business, from streamlining workflows, understanding tax implications, and optimising cash flow management, there are plenty of ways you can prepare your business for the bumpy road ahead.
Let’s explore how SMEs can best draw up a roadmap for continued business success.

Maximise your tax position.

Tax law is complex and, unless you are an accountant, you will need professional help to understand your liabilities and maximise your tax position. Ahead of submitting your plan for review by a financial professional, assume you have to pay maximum taxes. If you plan for the worst-case scenario in terms of your taxes, any savings you make can be used to grow. It also ensures that you won’t be left with a bill you can’t pay.

Constantly Review Your Financial Position

The more frequently you review your financial position, the more likely you are to keep ahead of any setbacks and refocus your efforts to avoid them altogether. Make time to review your income statements, expenses, and cash flow. It is the ONLY way to understand what is happening in your business is doing and identify ways to stay on track.

Monthly isn’t enough – particularly for a new business – weekly budget reviews are a necessary evil to keep you on track. Review the detail weekly and the big picture monthly. Your cash flow depends on how well you understand your income and costs and when they hit. If you see a potential bump, book time with your accountant to understand it. Bumps don’t need to be stops, there are so many options available to help you get past the bump, but planning is the first step to success.

Prepare a comprehensive business cash flow statement.

Preparing a cash flow statement is a great way to get an overview of your expected income and expenditure over the coming months. It helps to clearly show any potential gaps or inconsistencies in cash coming in and going out, as well as providing useful visibility on whether sufficient resources are available to meet desired goals.

A comprehensive cash flow statement should include estimated expenses and payments due, in addition to expected income sources including loans, investments, sales and other revenue streams. By taking into account all the relevant financial parameters, you’ll be better prepared for the ups and downs of running a business and will be able to make more informed decisions around budgeting for contingencies.

Create a detailed budget.

Creating a detailed budget is an essential step in making sure you stay within your limits and are able to save money. Start by calculating all sources of income and subtracting necessary expenses such as bills and debt payments. From there, you should aim to allocate funds to each budget item like savings, investments, upgrades on equipment, staffing, marketing, etc.

Make sure not to forget any hidden expenses such as subscription services or memberships that could cut into your budget.
Identify areas where you can reduce costs.

When looking to reduce costs, overhead expenses are the perfect place to start. These frequent and often hefty fees include rent, utilities, phone bills, association memberships, monthly subscriptions – the list goes on. To begin eliminating costs in this area, take a hard look at your business’s budget and identify any of these types of expenses that do not directly contribute to revenue generation or growth.

If there are any similar services you can purchase for a lower cost than what you currently pay, make the switch if it doesn’t detract from your goals. With a bit of effort and know-how, it’s easy to trim the fat from your overseas expenses and keep more money in the bank!

Analyse the risks associated with new investments or business decisions.

When it comes to analysing and deciding on new investments or business decisions, a risk-reward analysis is a great way to evaluate the potential outcomes. Risk-reward analysis is when you weigh the risks versus possible returns to allow you to make informed decisions.

Additionally, you might want to consider external risks such as market conditions, political climate, and regulatory challenges. With each decision, ask yourself: what could go wrong.

Leveraging invoice finance as a tool for growth.

There are many different lending options if you need access to working capital. The problem with traditional lending solutions is that they are fixed, amount, period, interest etc. If your business is strong, you may not need (or want) a traditional loan to help you fund growth. Invoice finance is an excellent tool for businesses entering a period of transition or growth.

Invoice finance puts you in control of what you borrow and when. Back in the day, invoice finance was considered a lending solution of last resort, but that is no longer the case. In fact, most accredited lenders will not work with companies who are in financial difficulty. There are many reasons why you may need access to cash ahead of being paid within your normal payment terms. Invoice finance allows you to borrow what you need, when you need with short-term borrowing at normal rates of lending.

So, if you’re looking for assistance in achieving your targets contact us today.

Our team of experts are ready to help steer your business in the right direction.