Financing a Business

Posted by Pierre de la Fortune on August 18, 2015 @ 12:01 a.m.

Written by Start up Donut

Many people struggle with the financial side of managing their small business. Not everyone has a head for figures or goes into business seemingly to become a part-time accountant.

While there are many things to get through in an average day and finance might be something you find hard or uninspiring, its something you cant ignore.

Managing your business finances

Owners with relatively more money might employ someone to take care of the financial management of their business. More complex tasks might be delegated to an out-of-house accountant. But if your budget is tighter, your involvement will need to be more hands-on.

In any case, you cant divorce yourself completely from the numbers. Being up to speed with your cash position is pivotal to making day-to-day decisions, while keeping an eye on the overall financial picture of your business will help you to make important calls that affect the future.

Maybe, despite a lack of knowledge and experience, youre relishing the prospect of crunching the numbers. Even fairly basic financial know-how can prove valuable, while information technology has made financial management easier than ever.

Key financial tasks

A key task for new businesses is to work out your start-up costs. As well as launching your business, obviously, you need to be able to financially make it through that all-important first 12 months.

Costs must be kept to a minimum, which requires resourcefulness, willingness to make sacrifices and often some good old-fashioned cheek.

Learning how to minimise costs from the start is a good habit that can help take your business on to greater things. When times get tough, cutting costs might be the only way you can steer your business through stormy waters.

As well as working out your start-up and operating costs, youll need to be able to predict sales. Welcome to the world of forecasting a science requiring a dash of art and thorough knowledge of the market.

To predict sales revenue, youll also need to know how to set prices. For example, will you simply add markup to your costs (known as cost-plus pricing) or will you base your price on the value your customer will place on your goods or services? Whichever method you choose, youll need to get your prices right if your business is to succeed.

Once you know how much money you require to launch your business, you can decide whether you can do it with your own cash or whether you need to secure start-up funding from elsewhere. There are various sources of start-up finance to consider.

Ensuring healthy cashflow

As any small-business owner or adviser worth their salt will tell you cash is king. Its a familiar mantra, but what does it mean?

As many profitable businesses have found to their cost, it doesnt necessarily matter how many sales you make or even how much margin you add. If you dont have enough cash in the bank and your creditors demand their money, the games over, even if on the face of it youre running a 'profitable' business.

Maintaining healthy cashflow is critical and its not just about making sure you spend less than you turn over. You also need to ensure you get paid on time, which will demand all of your credit-control powers. It doesnt pay to be overly generous with your credit terms. When payment is overdue, sometimes youll have to cajole customers, while with others youll need to be much more forceful.

Cashflow difficulties are enough to have the most seasoned small-business managers worried. However, learning to spot the classic signs of cashflow problems as early as possible provides the best chance of averting disaster.

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Balance sheet -- a statement of the financial position of a company at a single specific time (often at the close of business on the last day of the month, quarter, or year.) The balance sheet normally lists all assets on the left side or top while liabilities and capital are listed on the right side or bottom. The total of all numbers on the left side or top must equal or balance the total of all numbers on the right side or bottom. A balance sheet balances according to this equation: Assets = Liabilities + Capital.

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