Financial accounting is a mirror reflecting the quality of management and the efficiency of any business. Competent accounting of finance from the very start can help correctly assess its financial position and direct the cash flow to the right stream. In this article, we will talk about how to take into account the flow of finance at each stage of business development and how to analyze its financial condition.
Create Real Plans for Each Month/Quarter/Year
The rate of change and uncertainty in the markets and business is growing, but you still need plans. In the planning process, you can look a few periods ahead and predict what the financial result will be.
How to Do It in Practice?
- If the uncertainty is high, 3 scenarios can be developed: optimistic, realistic and pessimistic. In this process, you need to be prepared for everything and figure out the most likely scenario.
- Determine as accurately as possible the planned sales and price trends for key resources. The figures obtained as a result of planning form the basis of the budget for which the organization or a separate department operates. Therefore, several departments are working on the budget - these are sales, procurement, and finance departments.
Synchronize the work of the procurement and sales departments (you can use Nozbe and communicate through tasks). If they do not work smoothly, you will definitely have problems with the provision of goods to the buyer and reputation. To sell products, you have to freeze the money in the product or reduce the price so that the transaction is profitable for the next buyer.
Provide an Opportunity for Financial Control for Each Partner
If there are more than one partners and founders in a company, then, as a rule, only one of them is engaged in the operational management of a company. The others, without being engaged in current affairs, gradually cease to understand what is happening and where the money goes.
Spending seems to them unreasonable, relationships no longer seem to be transparent and honest, and along with it, good relations with a partner are gradually destroyed. Due to financial disagreements, thousands of partnerships and friendships have collapsed. Meanwhile, this can be avoided if you are able to control the state of affairs in the company and allow your partner to also be fully aware of all the changes.
How to Fix the Error
Creating and tracking financial statements will allow you and your partners to always be aware of what funds were spent on, and also not allow you to go beyond the established budget. It works especially effectively when it comes to joint business. Such reporting can be entrusted to an external accountant or staff member, with the proviso that each of the partners can obtain the necessary data at any time.
Keep Separate Accounts
Money used for working needs and money used to support a family should be kept separate. This separate account management will help avoid confusion when you will deal with taxes and other payments, help you more responsibly manage the money belonging to the company, as well as keep track of exactly how much money was spent. This approach will also protect your personal funds from debts and other expenses at work if the company faces difficult times.
Practical Ways to Maintain Separate Accounts
- It is not enough just to have a separate bank account for your business. It is important to perceive it precisely as the money of the company, which must be reinvested in the further development of the business. If business expenses come from one account, it will be easier for you to keep track of them and you will have a clear idea of your company’s profits.
- Keep money in a safe place. Talk to other businessmen and find out which bank and savings plan they use. In addition, constantly consider various opportunities for investment, so that your money is not only saved but also multiplied.
Use the Maximum Capabilities of Modern Software for Accounting and Financial Control
Automation of accounting processes is your faithful assistant. Thanks to that, you or your employees do the work faster and with fewer mistakes. Capable programs help you automate financial management if you work with them properly. Customize them based on your needs. Order the creation of those reports that you need. Continue to work with the program constantly, because your needs will change as you expand your business.
And do not forget to make regular backups. Thus, you will be sure that you will not lose all accounting data for several years in case of a program crash or a virus appears. Set up an automatic backup to the cloud or to the hard drive and cloud to be 100% sure of data integrity.
Avoid Too High Risks When Entering a New Market
You can take a risk when it is really justified, but you can give in to impulse or influence. The first group of risks has a positive expectation, the second - negative. The probability of the former works in our favor, the probability of the latter is against our expectations. With the launch of new markets and products, the risk remains. It is important to make sure that it is justified. An intelligent financier can figure out the idea of a new business or product and say whether it is worth investing time and money.
How to Avoid Risky Spending
The financier must take justifiable risks, reduce the possible negative effect on them and insure possible damage.
When entering a new market, you first need to explore the situation and then plan investments. There is a high probability that the investment will not justify itself. The first stage of exploration is carried out within the company, the second through market research, an expert survey, testing a hypothesis through the launch of a pilot project.
Understand the mechanics of the market, find out what products are in demand, and at what price. Determine whether the market has enough capacity to achieve financial goals. Leadership will not help if the niche is poor and not growing.
Spend Enough Time Exploring Your Domestic Market
Now you can ask a reasonable question about how finances are relevant to this statement?
If you do not know your customers and competitors, you lose money. For example, you create products that no one will buy, set too high or too low a price, and lose customers or reduce profits. Without this knowledge, it is easy to launch an advertising campaign that will “eat” your money and does not produce the desired results. This list can be continued.
What to Do?
The answer is simple - you need to collect data about the market, niche, customers, competitors, and trends. Fortunately, now there are a lot of advanced systems, including those using artificial intelligence, that help solve this problem.
Improve Your Financial Literacy
Doing business is a constant stream of financial management solutions. As your business grows, you will have to make more important financial decisions. Even when a competent financier appears in your team, you still need to be able to speak with him in the same language, to formulate the business objectives in the language of financial numbers. That is why, from the very first steps of your young company, pay attention to improving your financial literacy - read books, watch webinars, attend seminars and, of course, communicate more with more experienced business owners on financial management.
We will repeat the main steps leading to clarity in the company’s accounting:
- Develop a habit to analyze the cash flow from the very start of your business;
- Plan your expenses and compare them with income;
- Constantly collect information on domestic and foreign markets;
- Do not mix personal finance and company profits;
- Automate the reporting process.
We hope these tips were helpful to you. Wish you a rapid growth and constant predominance of income over expenditure!