All businesses face their own kinds of financial challenges, no matter their size or structure. Hence, financial planning, and not just the wishy-washy kind (think lazy, couch-bum Ed from Shaun of the Dead), is critical to building the foundation for a sustainable, and scalable business.
If you ever struggle with your trade accounts payable growing bigger and older, paying rent each month, or find yourselves too often operating at the very limit of your credit line, then you’ve likely got a cash flow problem. Keep reading the following tips to master the basics of small business financial planning.
Tip #1: Understanding the underlying root cause of your financial planning
First and foremost, you have to identify the root cause of your cash flow problems. Just knowing you need more cash is a problem in itself. That is why understanding the root cause is critical to financial planning. Many small business owners get into trouble simply because they don’t prioritize up-to-date, accurate financial data, which often leads to poor decision making.
Instead, get your business a good accountant and consider adopting accounting software to help you in the financial category of your day-to-day operations. These two tips are so important to ensure your business’ financial data is up-to-date and accurate. Plus, with the help of an accounting professional, you’re even better equipped to educate yourself financially, including reading financial documents and income statements!
Tip #2: Identify if the root cause can be fixed
Once you’ve identified the root cause of your poor cash flow, can the problem be fixed? For example, there’s a fine line between fixing a problem by pouring more money into it compared to coming to terms with the fact that the problem simply cannot be fixed. Realistically, all businesses have a life cycle—particularly if you don’t care to keep up with trends or innovations. Think of video rentals that have been taken over by streaming, for example.
Tip #3: Identify whether you can fix it
Is this a problem that you, as the business owner, can fix or correct the problem with an external consultant? This strategy forces you to reflect on your own strengths and weaknesses, in order to identify which area needs external help and when you need to seek assistance.
Tip #4: Find out if you have adequate resources
This tip is the most critical. Without sufficient resources (i.e. time and money), there is no way to correct the root cause, even if you have identified it and confirmed that you have the ability to solve the problem. Sometimes, you need external assistance, and that usually equates to extra dollars. Hence, the earlier you identify the problem(s), the more time and money are available to take corrective action.
Conclusions & Key Takeaways
A business without updated and accurate financial information will eventually reach disaster. Take the time to learn financial planning by following the above tips. Instead of shying away from the financial aspect of your business, hire a solid accountant, invest in bookkeeping software, and eventually establish a robust financial system. Trust us, your small business and its cash flow will thank us.