Finance is the most important aspect of business management. Every business, whether it is a large corporate or a non-profit, depends on money to function. Businesses need money to procure raw materials and other inputs, engage in production, hire and pay employees, market their products and services, and pay taxes to the government.
Despite its immense importance and centrality to business success, many entrepreneurs are still struggling to get a hang of financial management. To help you to set your business apart in 2023 and position it on a trajectory of long-term success, we have identified 6 key financial management best practices that will help you to achieve better business outcomes in 2023 and beyond.
- Separate your business and personal finances: The first step towards cultivating financial discipline as an entrepreneur is to separate your business and personal finances. And the first step towards achieving this is to open a dedicated bank account for your business. Doing this will enable you to channel all the transactions that are coming from your business through this account. You will also be able to get a snapshot of your business’ financial performance by viewing its bank transaction history.
- Record Your Transactions and Maintain Updated Financial Records: Bookkeeping is the most basic aspect (and one of the most important parts) of accounting. It is the process of recording the sales and purchases arising from your business. It is the foundation upon which other accounting processes are built because it supplies the data that will be used for further financial analysis. Do not just make purchases and receive payments without recording them.
- Periodically Analyze Your Financial Performance: You should regularly monitor your business’ financial performance. It is not enough to record your finances and maintain good bookkeeping practices if you are not going to use them for anything. Your transactions are merely raw data that need to be further processed for better decision-making.
- Get an Accounting or Financial Management Software: If your business witnesses high sales volumes, this would be the right time to get an accounting or financial management software to help you to manage your finances better. Fortunately, there are several reputable free software available on the internet that can help you do the job.
- Pay Yourself a Salary: As a business owner, you need to treat your business as a separate entity and not just an extension of yourself. This means that your company’s money is not essentially your own money. Strictly speaking, as a separate entity, any money that you put in the business should be considered a loan from you to the business and any money that you take out of it should be considered a loan from the business to you. Indiscriminately drawing from your company’s coffers to meet your personal needs will strangulate its growth. As an entrepreneur, you should put yourself in the payroll and pay yourself a salary that your business’ financial performance can accommodate.
- Get the Right Type of Financing: Not all types of financing are suitable for every business. Businesses, depending on the industries that they operate in, their stages of development and other factors, require different types of funding. For instance, a bank loan may not be suitable for a startup, while venture capital may not be the best financing option for an importation business. Identify the type of funding that is suitable for your business before you approach financiers because this will increase your chances of fundraising success.
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