|
|
|
|
|
|
|
12 Tips to Make Your Business Financially Fit
Many entrepreneurs—especially the ones who are just starting out—don’t pay enough heed to the fundamental tenets of money management. Often, they’re too preoccupied with day-to-day business to get involved with financial details. Besides, they know well enough that they have to seek the expertise of financial professionals, such as their CFO and outside auditors or CPAs. Still, grasping the basics of finance is an absolute must; this will allow entrepreneurs to work more effectively with financial advisers and to quickly zero in on possible problems in the fledgling company. Below is a quick list of some basics:
» Make sure you never run out of money. This is imperative. Calculate your burn rate (the net cash that is coming out of your business each month). And take note that your low cash point for any given month is not necessarily at the end of the month.
» Implement real financial systems from the start. Don’t delay in setting up financial systems. This will establish a strong foundation for future growth.
» Keep tabs on everything. Having real financial systems in place will let you be thorough about measuring everything. This includes standard things—such as profitability and losses, balance sheet, and cash-flow statements—as well as things unique to your particular business. Also, use metrics that will tell you where your business is heading, not just its history.
» Create an annual operating plan. Write out your yearly operating plan and budget every year—before the year even starts. This will allow you to see how you’re doing against your own expectations.
» Rely on your vendors to finance your business. While vendors would prefer to get paid on time, keep in mind that they will take consistency of payment over timeliness. Payables can typically be extended from 30 to 45-60 days. Just be regular about paying, and don’t make excuses when vendors call. Tell them when you are going to send your payment and do exactly as you say.
» Rely on your customers to finance your business. Customers—especially those who greatly appreciate your products and services—are often amenable to paying right away. Don’t hesitate to ask them to prepay, especially if you’re a service provider.
» Avoid personal guarantees. Sign one only if you have no other recourse. Remember you are already putting in a considerable amount of your personal assets and energy in your business. By making a personal guarantee, you stand to lose major personal assets like your house.
» Be wary of too-good-to-be-true scenarios. Get used to the realities of business—including the need to have books that balance, the cost of financings and the demands of investors. Before getting into anything, investigate and get the details.
» Secure the appropriate level of financing for your business. Don’t raise too little or too much venture capital. Take note of what you’re trying to build and finance it appropriately.
» Select professionals judiciously. Instead of pursuing a bargain by hiring an acquaintance or a friend of a friend as your lawyer or accountant, go for quality. Seek professionals who are competent and have worked with young companies before.
» Don’t be careless. Double-checking is the way to go. You can do this once you have the right systems in place (see the second point.)
» Pay your taxes promptly. Local, state and federal tax authorities are not to be used as sources of finance for your business. You could be slapped with penalties, or worse, charged with a crime.
By following these 12 tips, you can get your company financially fit and ready for growth.
Source:
The Entrepreneur’s Financial-Fitness Checklist
|
 |
| View Current Issue View Past Issues FREE Subscription |
|