The Basics of Fret-Free Business Finance
The basics of controlling your business’s finances are similar to managing your own personal finances. You have to keep track of how much money is coming into your accounts and from where it’s coming. Equally important is knowing how much money is going out, and for what. You need to have an idea of what is absolutely necessary — rent, payroll, taxes — and what can wait — new equipment, flashy new marketing. Keeping track of all of these numbers and knowing what each line item is for and how it affects your business is the basics of having a good understanding of your business’s cash flow. The idea is, much like with personal finance, to have more money coming in than you do going out.
Staying Positive
When it comes to maintaining a solid understanding of how your business is doing financially, you need to be able to look at both the big picture and the details. The trick is that staying in the black has to do with more than just making sure you’re making more money than you’re spending. If you’re in an industry such as manufacturing, you might be dealing with long-lived invoices, which can mean that you’re looking at weeks or months before your clients have to pay for the goods you’ve already delivered. While you’re waiting, you might end up with a few months when, though you have a big payment coming due, it still hasn’t hit your accounts but you still have to pay rent and payroll.
That’s why it’s so important that you know what everything is going towards. If you are in that situation, you might need to hold off on purchasing new equipment for a little while to ensure that your cash flow is positive. Being able to analyze the situation and make those decisions can make a big impact if you ever need to apply for loans or financing down the road.
The biggest difference between your business and personal finances, though, is that your business’s financial situation affects more than just you. If you have employees, they are also depending on your ability to control your finances, which is why it’s especially important that you understand how cash flow affects your business. Take advantage of the various websites and organizations that can help you understand business finance so that you are able to keep your business’s financial situation both positive and profitable.
