Planning finances is an integral part of running a successful company. Without an effective financial management process, a business becomes much more at risk from any volatility in the market or unexpected circumstances.
But despite that, 66% of businesses face financial challenges, and 86% of companies wouldn’t survive without revenue for even two months. And that shows a lack of understanding of how to improve financial practices through technology and innovation.
The good news is that today, even small companies have access to powerful financial tools such as a payroll app, which can help streamline various processes and ensure smooth financial planning. At the same time, these tools can free up a lot of time that would have to be spent on things like payroll, allowing you to spend that time on more productive activities.
To help you figure out how to run your business finances more effectively, let’s explore a few key factors you should consider.
One of the biggest challenges small businesses face is remaining compliant in handling finances. A business needs to make sure they follow various requirements, such as adhering to the SOC 1 compliance requirements, especially if you’re responsible for handling your clients’ finances. But also other accounting standards, tax obligations, and protections against employee fraud.
Complying with necessary federal, state, and local financial regulations will help avoid unexpected penalties or expenses, which is an integral part of maintaining financial stability and managing your budget with confidence.
Monitor Business Cycles
The vast majority of your expenses will depend on your ability to make accurate predictions about the financial future of your business. Whether it’s knowing where to spend your marketing budget, restocking, or even making investments into scaling the company, you need to understand what your immediate and medium-term financial situation is likely to look like to know how to best act in any situation.
To do that, you should establish a process for continually reevaluating your past performance, identifying patterns, cycles, and predictors for fluctuations that you can use to become more confident about your company’s finances and cash flow.
For instance, if you discover a certain seasonality in the number of sales, revenue, or product stock shifts, you can begin to better allocate your resources, using analytics and insights you gain to automate inventory processes.
For instance, if you know that a certain period will likely result in fewer sales, you can reduce the number of items in stock, lowering your overhead costs. At the same time, if you know there’s likely to be an uptick in sales, you can stock in advance and prevent running out at the peak of sales.
Save Enough for Day-To-Day Operations
For small businesses, taking advantage of new opportunities sometimes means investing a significant amount into marketing, sales, or product development. And while that can often pay off, you still need to be mindful of whether you have enough of a cushion to keep daily operations going smoothly.
To prevent issues, make sure you establish how much you need to operate for a single day and always have enough free money for wages, rent, and other expenses that you are likely to face.
Sometimes, it’s better to lean on the cautious side and decide not to pursue an opportunity if that provides you with the assurance that you won’t lack even the most essential resources if something were to go wrong.
Look for Ways to Cut Costs
As a business, you have ways of increasing revenue. The traditional way is to attract more customers, make more sales, and expand your selection of products to encourage repeat purchases. But an often-overlooked method for achieving the same goal is reducing your operating expenses without a drop in the quality of your products or the number of sales.
The brightest business minds who have achieved tremendous success are always looking for new ways to streamline processes, cut unnecessary waste, and innovate towards a more efficient way of doing things. And sometimes, even the smallest changes can have a huge impact on how much you can achieve.
And one of the best ways for cutting costs and boosting efficiency is to utilize the technology available today. There are a variety of powerful software solutions designed for small businesses that can help save time and do things better. Savvy business owners should be on the lookout for ways to reduce the manual work required because there’s a limited number of hours per day they have already.
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Don’t Let Problems Grow
Finally, when it comes to becoming stable financially as a business, you need to be diligent about solving any problems as they arise.
Sometimes, even seemingly minor financial issues or additional expenses can balloon into serious problems, so always monitor your situation and think about whether the inconvenience of doing something now outweighs the potential financial damage that ignoring the problem could bring later on.
When you’re operating a small business, maintaining financial stability is vital for withstanding unexpected developments in the market or issues within the company.
And with the steps listed above, you can become better at utilizing the financial resources you have available and automating various processes at the same time.