The road to business success can be a fairly rocky one. But as with most rocky situations, there is a lot to be learned along the way. Unfortunately, one of the lessons many entrepreneurs learn the hard way is the proper way to handle their finances. As financial issues, including lack of funds and financial mismanagement, are among the most common reasons for business failure, this is an area that deserves some thought and planning.
Below are 7 financial habits that can help your road to success feel a whole lot smoother:
1. Create Proper Financial Statements: A lot of people have the misconception that financial statements are a simple listing of all business expenses and income. Proper financial statements don't stop there. In order to get a realistic grasp on your company's cash flow, value of assets, and any debts you have, generate complete financial statements on a quarterly basis. By doing so, you'll have the opportunity to see that your checkbook's balance isn't always an indication of the financial health of your business or income earned.
2. Engage an Accounting Expert: Put forth the money and effort required to find a good accounting firm to help you with your accounting needs. Although this may seem like an expensive proposition, business failure will be even more costly. By hiring an accounting firm, not only are you saving yourself the hassle and space of having an in-house accounting department, but you'll also be ensuring that the money end of your business is running as efficiently as possible.
3. Utilize Financial Management Software: Even if you're using a professional accountant, managing and reporting your business finances will require some sort of financial management software. Using this type of application will provide you with the information required to make informed business decisions. Items such as savings and profits will be outlined clearly so that you can instantly see where any improvements need to be made.
4. Track Sales-to-Expense Ratios: By tracking your sales-to-expense ratios, you'll have the tools and knowledge required to make any changes where necessary. For example, by tracking advertising expense-to-sales ratios, you can clearly see if your advertising dollars are being spent wisely. If you notice an increase in advertising expense-to-sales ratios, it very well may mean that your current method of advertising is ineffective and needs to be reexamined.
5. Monitor Inventory Levels: A very important aspect of any product-centered business is inventory management. By monitoring inventory levels closely, you'll be able to protect your business from simple yet destructive issues, like running out of goods or materials.
6. Manage Accounts Properly: By understanding how to properly calculate and manage accounts receivable and accounts payable, and understand their relationship to each other, you're better able to get a handle on your company's financial health. Your accountant will help with this, but you need to know it yourself too. It's your business, and you want your finger on the pulse of your finances at all times.
7. Have a Capitalization Strategy: Business planning and capitalization strategy should go hand-in-hand. By understanding what will be needed in order for you to acquire the resources and amount of capital necessary to accomplish your business goals, you will be able to plan much more effectively for the end result that you desire.
By implementing these habits, your business will stand a much better chance to avoid becoming part of the failure statistics. You certainly don't have to be an accountant in order to be successful with your business, but if your finances aren't managed properly, your chance of success is greatly diminished.