Hello SOTGC community,
As a financial consultant, one of the things I love to see most is when an entrepreneur reaches out before or at the very start of their business. Too frequently, entrepreneurs fail to admit they aren’t able to or won’t have time to manage their business finances themselves. In these cases, the best thing to do would be to seek help.
Unfortunately, more often than not many entrepreneurs push this task to the bottom of their to-do list and ultimately do nothing. Big mistake number one.
It can’t be stressed enough how critical good financial management is to your businesses’ health. Not dealing with the number crunching doesn’t make the need for it go away. In most cases, doing nothing only compounds the problem and costs you money and time in the end.
Even if you’re an entrepreneur who has taken the steps to hire a professional, it’s equally as important that you take the steps to be informed of how the finances in your business are managed.
For entrepreneurs to completely turn their finances over to someone else is mistake number two. Being informed allows you to be proactive when issues surface. Business owners need to participate in financial decisions from a place of knowledge, not fear, ignorance, or habit.
It’s been said that successful people make their own luck, but that can really be translated to they make smart decisions. Even if finances aren’t something you have an interest in, the biggest mistake is to avoid them. Entrepreneurs need to make the decision early to tackle the financial management of their business. It doesn’t take long for lack of knowledge and mismanagement to cause a huge problem for businesses. The good news is it doesn’t take a long time to get smart about finances either.
These are the three most important steps to getting smart about your finances. Start practicing these on a monthly basis and grow from there.
1. Review business checking and credit statements
Before you can make any major financial decisions for your business, the first thing you need to know is how much liquid capital you’re working with. Because most banking transactions take place overnight, you need to review your accounts in the morning so that you’re working with real-time numbers. Also, you will catch errors on day one and have them resolved within the current month. Check the current balance. How much more or less is it than yesterday’s balance? This will tell you right away if there has been normal or abnormal activity in your accounts.
Next, scan over the withdrawals. Make a list of any debits you do not recognize. Note the payee and amount. Look for any fees that have posted to your account. Contact your bank and ask for more detail on unrecognized debits. If necessary, open a dispute of the debit item immediately. Ask that any small fees be waived. Most banks will waive a certain number of fees per month as a courtesy.
2. Review accounts receivable
Your cash flow depends on paid invoices. Every day that a business has more outstanding invoices than payments it’s losing money. Your goal is to keep invoices from going past 30 days. You should have a list of invoices that are approaching thirty days past due. Have a process in place to contact the debtor via phone or email with a final notice. Make updated notes of last contact and any payment agreements made. Keep tabs on payment agreements to be sure they are kept. Invoices 60 to 90 days past due should be turned over to an in-house or outsourced collection agency.
3. Review accounts payable
Your cash flow not only depends on payments coming in, it is determined by what goes out as well. The more money you can keep in your business, the more capital you will have for growth. Reviewing your accounts payable daily keeps you from making late payments and helps you to avoid fees. It’s important for business owners to pay bills on time and stay in good standing with creditors and suppliers. Scan through your payable, and note the due dates. Be sure there is no previous balance or fee that needs to be addressed. If there are any issues with the bill, contact the payee immediately and clarify the correct amount due. If you’re using online bill pay, be sure to set the payments up to post on or before the due date. A good bill-pay process for businesses is to go through the bills at the end of every week and set them up in banking bill pay. Be sure to note on the bill the date payment was sent and the amount paid.
What is your biggest challenge when it comes to managing your business finances? Let us know in the comments below.