Business finance is a subset of finance that addresses how companies of all sizes create and sustain a specific value by efficiently using all economic and accounting resources. The main objective of business finance is to maximize the value of profit for the company. The work entails dealing with everything, from managing assets and liabilities, maintaining financial records, preparing financial documents, and decision-making.
As an entrepreneur, you need to be a generalist. However, learning multiple skills will eventually help you run your business successfully. While you may have your specific strengths, financial literacy goes a long way. You’ll be able to ensure your ship remains afloat with at least a basic understanding of business finance. With that said, listed below are a few basics for beginners.
Fundamentals of accounting
The crux of financial planning for any business lies in good accounting practices. Without accurate accounting records, you won’t know whether your business is growing or declining. In addition, these records will help you see possible red flags and work on ways to avoid significant losses in the future.
Financial documents such as the balance sheet, income statement, and cash flow report will provide the foundation for effective business decision-making. Therefore, you need to familiarize yourself with standard accounting and finance jargon. Take the time to know what assets and liabilities are, accounts payable and receivable, how expenses affect your bottom line, depreciation, etc. If you’re a newbie, it might get overwhelming for you.
However, worry not. You can register in short courses on the internet to quickly skill up and brush up on some accounting concepts. If you’ve already completed your undergrad, you can also supplement your learning by completing an online master of accountingand take up the role of your business’s CFO. Flexible learning opportunities are an excellent way to hone your expertiseand apply your learnings in a practical settings.
The money-spinner for business
After interpreting accounting records, the next step is to look for the profit centers of the business. There are some core activities of sales and revenue that cannot be restricted. Otherwise, those revenue streams will shut down. Every business needs to generate profits to keep growing, and financial planners have to find ways to improve these profits.
Nonetheless, the amount of money your business makes is not directly proportional to the number of products you sell. Instead, you can also maximize earningsviaefficient production and investing in funds wisely, alongside working on new strategies for trading in different markets. Thus, financial planning entails working on all of the possible avenues to identify opportunities for profit maximization.
Recording details of every single penny you spend on business is necessary. It might seem tedious, but automation and software make expense tracking and recording pretty straightforward. Financial planning without understanding cash flows might lead to big problems. Instead of waiting for the annual financial reports, try to record every transaction during the operating cycle. Doing so will simplify cash management. Good cash management can help you with several business processes. These include.
The most demanding expense of every business is payroll. It is the least flexible aspect. Employees want to get paid on time, no matter what. If your business does not generate enough cash, you’ll have to delay the payroll or borrow money. Both situations are problematic because employees do not like to float and banks will keep adding to your liabilities.
Having a good billing strategy
Cash management will assist you in generating a billing strategy. It will help you to pay your bills and receive the payments and invoices on time too. However, late bills, either paid or received, might disturb the income. Therefore, prioritize having a good billing strategy.
Cash management will help you in determining how much loan you need to take out for a project. It will also give you a picture of whether or not you can afford to repay the debt. Asking for more money than you need might be tempting, but keep in mind that you have to return the money with interest. If your cash flow is negative, paying off loans and interest will only add to your existing business problems.
Improper or ignoredtax management can make you go through severe losses and penalties. So while managing cash flows, keep taxation in mind to avoid future fines and bankruptcy.
Poor financial planning can destroy your business gradually. Therefore, as a beginner, try to take a comprehensive approach towards becoming familiar with financial planning. If you need to upskill, enroll in an online course to make the best use of time and technology. Familiarize yourself with the basics of accounting software, business profit centers, and cash flow management. Once you get the gist of the fundamentals, you’ll be ready to take on more significant money-related problems in your business.