25 Principles of excellent financial management – For business owners – Part 2

principles of financial management 2

25 Principles of excellent financial management – For business owners – Part 2

Following on from our post at the beginning of the month, we’re covering the next 10 steps to great financial management for your small business.

From tools of the trade, to tips and tricks we’ve studied – you need these practices in your business today!

11. Look after your credit score

It might seem like a no brainer, but your credit score is important. As a business owner, you may want to borrow money or lease equipment. Alongside your business plan and proof of earnings, a good credit score can help to support you when go looking for help. You can check on your credit score easily using tools like Experian.

12. Set ambitious but realistic goals

There’s nothing wrong with setting your sights on a six-figure business or million pound turnover. However, it’s best to keep your goals regular, consistent and realistic. You don’t want to be feeling disheartened when you see how far away you are from your target number.

13. Review expenses regularly

Do you know how much you’re spending? Signed up to subscriptions you no longer use? Paying for a service that isn’t bringing in a good ROI? Get to grips with your expenses and know exactly how much it’s costing you to run your business. If you fall on hard times, you’ll know where you can cut back.

14. Pay all bills on time

You want your figures to be as up to date as possible. Try to pay bills as soon as possible to ensure that the figure in your business bank account is accurate. Leaving bills unpaid could lead to interest or a huge list of expenses to settle at once.

15. Assess different payment types

Depending on how your customers pay you, it might be worth shopping around when it comes to payment providers. For overseas clients, portals such as Stripe and PayPal may be a safer option. However, most third party payment portals charge a fee or offer poor exchange rates. Be sure to investigate the most cost-effective option for you.

16. Check in with your business plan

Are you on track? It’s hard to know how you’re doing if you’re not touching base with your business plan every now and then. Make time, at least quarterly, to sit down with your business plan and see how you’re doing.

17. Think about your pension

Another thing to speak to your accountant about is how to manage your pension. If you are self-employed or running a small business, this is your responsibility. There are many different ways, means and schemes for collecting a pension – but ask a financial expert for customised advice.

18. Know your day to day costs

Managing your finances comes down to the nitty-gritty. Ever heard the saying ‘look after the pennies and the pounds will look after themselves’? – that applies in business too. Fans of The Lean Start Up recognise the importance of keeping your day to day costs down, knowing the benefits will accumulate later.

19. Get the right funding

Depending on the type of business you’re in, and how long you’ve been operating, there are various options when it comes to getting funding. For innovative new products, there’s Kickstarter and other crowd-funding options. For businesses who want to scale, there’s AngelList. For many, it starts with borrowing from friends and family. Ensure that you’re aware of the interest rate and pay-back terms with any investment. If you’re concerned, run it by your accountant first.

20. Find a great accountant with a track record

By far the most useful tool when it comes to financial management, is a trustworthy accountant. Getting to know you on a personal level allows your accountant to recommend the best possible products and avenues, based on your individual needs. When choosing an accountant, see if you can find out what other businesses they look after. Do they have a long, positive track record? Do they have good client testimonials and a professional looking online presence? Be selective and don’t be afraid to ask lots of questions.

Thank you for checking out our top 20 tips for great financial management. Didn’t see the first 10? Check out that post, here.

Got any questions? Find us on Facebook, Twitter and LinkedIn. We’d love to hear from you!

20 Principles of excellent financial management – For business owners – Part 1

principles of financial management

20 Principles of excellent financial management – For business owners – Part 1

As a small business owner, there can be a lot to remember when it comes to finances. For some, this is second nature. For others, learning good financial management practises is a totally new ball-game.

Whether you are being supported by an accountant or not, it is very important to have at least a basic understanding of managing your money. Split into two parts, here are our first top ten tips for keeping your finances in tip-top condition.

1. Keep your business and personal transactions separate

Known by accountants as ‘economic entity assumption’, this process makes your accounting far simpler. By having separate bank accounts for yourself and your business, it’s easier to calculate expenses, earnings and just about everything else, without spending hours trawling through your bank statements. Treat your business as a separate ‘entity’, not an extension of your personal finances.

2. Date everything & run reports with similar timeframes

Every piece of financial collateral should be dated. Whether it’s statements, invoices, reports or receipts – put the full date on everything. If money was to ever go awry, or your accounts weren’t tallying up, a full timeline of your income and outgoings will help to alleviate concerns quickly.

3. Don’t confuse cost and value

Known to accountants as ‘cost principle’, this term refers to how items are recorded in financial reporting. Say your business bought a building and the value of the property sky-rocketed, your financial reports would only take into account the price you paid for the property. Value is reflected in the gain or loss when selling an asset.

4. Full disclosure with your accountant

Otherwise known as the ‘full disclosure principle’, this refers to the relationship between yourself and your accountant. You should disclose all financial information to ensure that your reporting and account management is always correct, up to date and meticulously accurate.

5. Always prepare for tax

No one wants to think about tax before it’s due, but it’s a great habit to get into. To protect your cashflow, many accountants will recommend that you syphon off a percentage of your revenue into a separate account. When your tax bill comes around, the money will be ready and waiting – preventing any surprise costs.

6. Pay yourself weekly/monthly

When you first start in business, this may not be feasible. Later down the line, the amount you pay yourself may still fluctuate. However, if you pay yourself on the same day of the week or month, it’s much easier to track your earnings and calculate your living costs. The amount may vary, dependant on turnover, but the date can remain the same.

7. Have a billing strategy and payment terms

In your billing strategy, you should invoice on a particular day of the week, offer inflexible payment terms (14 days, 30 days etc.) and impose financial sanctions for late payments. For example, you could explain that you charge a 10% surcharge on all invoices over a week late. It might seem harsh, but poor cashflow management is the number one reason that small businesses fail.

8. Check in on your books

In order to operate good financial management practises, you need to know what’s going on in your bank account. Using an online accounting system (such as Xero or Quickbooks) allows you to touch base your finances, whenever you want! Make it a habit to get friendly with your accounting once or twice a week.

9. Understanding your cash flow

In any business, there will be peaks and troughs throughout the year. If you are paying attention to your finances and keeping track of your income, you’ll know exactly when your peaks and troughs are. If you are quieter over the winter, you could start putting money aside in the busy summer months. Understanding your cashflow, when it’s flowing and where it’s flowing from, is incredibly important.

10. Understand your reporting

Speak to your accountant about the difference between your balance sheet, income statement, cash flow statement and revenue forecast. Once you’ve got a grip on how all these reports work together, you’ll find it easier to get the information you’re looking for.

Stay tuned at the end of this month for ten more expert tips from the GHawk team. Got any questions? Find us on Facebook, Twitter and LinkedIn. We’d love to hear from you!