Basic Principle of business finance

Posted by Pierre de la Fortune on August 29, 2015 @ 12:01 a.m.

Written by Bret Pippen

A basic principle of business finance involves managing your cash flow. Without cash to fund your business, you risk not being able to pay expenses or having to borrow funds.

Just like the unexpected happens in life, the same applies in business. It could be as simple as a late customer payment or a broken piece of equipment. Anything can happen that requires you to spend money you didnt plan on using.

And, the current economic climate isnt helping business owners. Even if you pay close attention to your business finances, forces beyond your control can affect your cash flow.

So how can you best cover your expected and unexpected business expenses? Plus, how can you make sure theres enough cash flow to grow your business? The following recommendations can help you manage your cash flow at the highest levels.

Manage Your Customer Payments

To survive, you need to get paid. You cant afford to wait months to get paid, or risk not getting paid at all. A few things you can do to help avoid customer payment issues include:

Invoice promptly. Whenever you finish work for a customer, make sure you bill them right away. You want to get paid as quickly as possible and many companies have longer payment cycles. The quicker you get your invoice in, the sooner youll be paid.

Also, consider doing all invoice and payment processing electronically. Sending invoices via e-mail is quick and secure, for the most part. Many e-mail applications provide an acknowledgement when an e-mail is received and read.

Setting up electronic funds transfers, credit cards or PayPal accounts can help keep your business finances in top shape. You wont have to wait for checks to come in the mail, be processed by your Accounts Receivable department and then be deposited into your account.

You can even provide incentives, such as discounts, for your customers to pay early.

Re-evaluate What You Charge Customers

A basic guideline in business finance is to price your product or service high enough to provide a profit. To make sure you are earning a profit, you must know all of your costs. Its easy to overlook some costs that go into serving your customers. If you dont account for all of your costs, youre probably losing money or at least not earning as much of a profit as you should.

Other business finance practices involve bundling your offerings and selling additional products and services to your existing customers. Keep focused on providing value to your customers, not just earning a profit. You want to maintain a long-term relationship with your customers to ensure future cash flow.

Manage Your Business Expenses Carefully

You want to accomplish three things with your expense management:

Pay your bills on time to build a solid credit rating Pay your bills early to earn discounts, when it makes sense for your business Balance the two suggestions above with timing your payments to provide the best cash flow.

Finally, always make sure you have emergency funds available to weather a down market, natural disaster, equipment failure or any number of other unexpected things that can pop up. If emergency funds remain unused, youll have a surplus to strategically grow your business.

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