Navigating the financial side of business is daunting, especially with limited budgets and resources. How do you know where to cut costs versus when to spend more? What investments will give the best ROI? Who can you trust for money advice? Even with an MBA in hand, the financial uncertainties keep you up at night.
But fret not — solid financial decisions don’t require being a math whiz or Silicon Valley wunderkind. Financial leadership is a learnable skill, just like building a table or changing your oil.
This article breaks down 6 fundamental tips to start making savvier money moves for your business. With the right financial know-how guiding your Financial Decisions, you can be the CFO your company needs. Let’s count down the essential advice for managing finances with wisdom and confidence.
1) Screen Your Partners and Clients to Avoid Financial Ruin:
Surrounding yourself with trustworthy partners lays the foundation for any business. But thoroughly vetting vendors, contractors, and other third-party relationships is a daunting task. The last thing you need is to become legally liable or financially responsible for a partner involved in shady dealings, lawsuits, criminal acts, or other adverse media coverage.
Thankfully, with today’s technology, it’s easier than ever to screen potential business partners in-depth. Hiring an adverse media screening expert to thoroughly research companies you plan to do business with provides invaluable protection.
A professional screening specialist will comb through millions of records to uncover past and present red flags like fraud accusations, bankruptcies, regulatory penalties, ties to risky entities, and any other negative incidents. An adverse media report equips you with the objective information needed to evaluate if a high-risk partner could damage your company’s finances or reputation by association.
2) Create a realistic budget with room for flexibility
Budgeting gives visibility into where money comes from and where it goes. While a necessary evil, diligent budgeting enables you to optimize spending. Start by building a profit and loss statement and cash flow projection based on realistic revenue and expense estimates. Tracking historical data helps forecast future numbers.
Categorize expenses into regular costs like rent and utilities, payroll, supplies, professional services, and discretionary buckets like marketing, technology, and office perks. Underestimating key areas like payroll can quickly sink budgets while overestimating distorts your spending abilities. Build in at least 15% wiggle room for unexpected costs.
Revisit budgets monthly, adjusting categories to align with real-world numbers. As the business evolves, budgets should follow suit. Use budgets to guide priorities, not restrict possibility. The goal is to maintain financial responsibility without stifling growth. With a clear picture of money in versus money out, strategic Financial Decisions become easier.
3) Always chase payment:
Cash is still king, no matter what the finance gurus claim. Boosting profitability starts with collecting payments quickly and reducing receivables. Make it easy for customers to pay upfront with online ordering, recurring billing, and digital payment options. Provide incentives like expedited shipping or discounts to those who pay early.
Follow up on invoices the day they are due, then keep contacting late payers regularly. Automated payment reminders through accounting software are great for nudging forgetful customers. Be firm yet sympathetic to get the money owed without alienating patrons.
If repeated contacts fail, bring in collections assistance or legal counsel earlier than later. The longer you wait, the lower the chance of recovering payment. Better to cut losses on a small overdue invoice now versus keep providing unpaid services that balloon into a massive receivable down the road. Cash in hand enables growth — don’t let customers slow your momentum.
4) Only borrow when absolutely necessary:
Debt digs a dangerous hole that’s tough to climb from. Business loans burden you with payments that eat up the cash flow needed for operations and investment. While financing can provide an infusion of capital to get started or expand, only borrow when absolutely necessary.
Begin by exhausting personal funds, crowd-sourced investments from friends and family, business credit cards, and other bootstrap funding sources. If loans are unavoidable, research thoroughly to get the best possible terms and avoid shady lenders. Compare interest rates, collateral requirements, and hidden fees.
Aim for the smallest loan amount and shortest repayment term possible. Structure additional payments toward the principal to pay it off early. Renting equipment before buying can also stretch capital in the early stages. With fiscal discipline, you may find loans unnecessary. But if you must borrow, do so minimally and strategically. The less debt weighing down your business, the better.
5) Spend where it counts:
Trimming wasteful spending is always smart. But don’t take cost-cutting too far. Analyze where operational investments provide real impact versus nickel-and-diming vital functions into inadequacy. Audit expenses with a keen eye toward what drives measurable growth.
Customer acquisition, for example, is a proven revenue driver deserving of ample resources. Likewise, employee satisfaction from competitive pay and an engaged culture fosters retention and referrals. Upfront renovation costs could expand retail space and lifetime profits. View spending through the lens of rapid ROI and long-term benefits.
Of course, non-essential costs like lavish office space, frequent employee parties, and overpriced equipment for the sake of status deserve the axe. But don’t sacrifice key investments in quality and growth purely to hoard capital. You can’t cost-cut your way to success. Spend liberally where it counts.
6) Hire a financial expert when needed:
Some money matters require trusting a financial professional. A qualified accountant delivers expertise maximizing deductions and structuring your business to minimize tax liability. Their services pay for themselves by identifying savings and ensuring compliance.
For major Financial Decisions like securing business financing, talk to qualified lenders who understand your sector and goals. A financial advisor provides objective guidance on investing profits, retirement planning, protecting assets, and other wealth management priorities. Lawyers assist with legal and contractual details when deals get complex.
Having a supportive team covering financial angles beyond your experience is invaluable. Of course, these experts charge fees, but their specialized knowledge saves money in the long run while giving peace of mind. Focus on your business strengths and delegate money matters to pros when prudent.
Ranking among the most common reasons businesses fail, poor financial decisions carry heavy consequences. But following these 6 tips equips you to take control of the numbers driving your company. Handling money skillfully allows you to turn passion into a profitable, sustainable business. With financial wisdom guiding your entrepreneurial path, any dream is possible.