Being an entrepreneur and setting up your own business is one of the most exciting things in the world. However, once it wears off, you have the challenges of day-to-day management staring you in the face. If you are the creative type who focuses on the big picture, chances are you will find financial management a chore at best and a nightmare at worst. Managing accounts and record keeping are not activities an inventor or creator would be keen to take on, yet they are essential for running a business.
Financial Management Tips
Thankfully, here are five tips that you can follow to take charge of the financial management of your business.
1. First Things First
Entrepreneurs with less than CFA-level financial skills should not be intimidated by the seemingly technical accounting packages, read Peachtree and Quickbooks, and terminology around them. Bookkeeping can be a task as simple as other aspects of managing a business. The key is to get down to it right now. Deferring these tasks does not make them disappear. A few weeks down the line, they will have become bigger and uglier and still staring you in the face.
A simple way to getting around bookkeeping tasks is to categorize them. Sort your financial activities into categories such as expenses, income, cash transactions, wages, and so on. Managing separate activities will make things easier and efficient than trying to manage everything at the same time.
2. Work with the Business Trends
Most business operations follow seasonal trends, sales revenues and sales-related expenses, in particular. As the owner of a new business, you need to chart out the seasons where income revenue seems to peak and where it slows down. Being an astute financial manager requires you to maintain the necessary cash reserves to see you through the low-revenue months. Another thing you need to be careful about is the sales cycle, i.e. the time between making a sale and receiving the payment. The sales cycle for consumer retail products is very short (think selling a bag of chips to a customer at a supermarket) when compared to business sales (payments for big machinery and projects can take several months to arrive). After all, staff need to be paid regardless of whether customers are coming in or not.
3. Don’t Reinvent the Wheel
This is a temptation that most entrepreneurs need to resist. We understand that being inventive and self-sufficient is what brought you here, but running a business is about more than having ambition. You need to make efficient decisions. If there is an accounting package you can buy off the shelf, then please do so. It will take a couple of weeks to master. What you shouldn’t be doing is getting your team or a third party vendor to develop one exclusively for your business. That makes no business sense whatsoever. In doing this, you are not only channeling money to an activity that offers less return. You are also diverting your staff from their core expertise—you certainly did not hire that programmer to develop an accounting package that you won’t be selling to anyone, did you?
4. Too much Firefighting?
A good sign of a poor business is if the owner cannot gradually wean himself (or herself) from the day-to-day operations over time. If you find yourself continuously working long hours to sustain your business, it is an indication that something has gone wrong. As an entrepreneur, your goal should be to make your venture self-sustainable in the medium-term so that you can focus on more creative and strategic pursuits. This can only happen once the business becomes financially viable. But if after the first several months, you still need to sort out things and think about getting finances on track, it might be time to revisit the drawing board or consider divesting the business.
5. Be Brave
Perhaps brave is not the right word but it is important to have a thick skin when it comes to asking for discounts. If doing this worries you about coming off as cheap or petty, you might not be cut out for entrepreneurship. If you want to procure a product or service for your business, and do not have the necessary funds, there is nothing wrong in approaching the seller for a discount or a staggered payment plan. Businesses are looking out to lock in customers and new startups are very attractive in this regard. Chances are they will not want to lose a potential big customer for a few dollars. At the worst, the seller will simply refuse. I am sure you will live through that.
It is true that financial management is a specialized activity that requires professional expertise. But for a fresh new business there are several financial tools and products that can make the task easier. The key is to keep things in perspective and be realistic about the needs and capacity of your current resources. The tips discussed above will help you approach your financial management tasks more practically and creatively so that your venture becomes a self-sustaining enterprise in the shortest possible time.