How To Manage Your Business Finance

In my experience, the most important aspect of successful business management is simply to understand the basics of business finance, so you can make informed decisions, based on financial reality. More than 80% of businesses keep busy and try to get more sales in the hope that the overall result should be a healthy bank balance as well.

One of the primary ways in which this shows is in the way that they treat the financial information that is available to them. Too many business owners or managers receive a balance sheet from their accountants each year and simply file it away as though they are totally detached from the figures. This is probably because they don’t know how to interpret the data in front of them properly. However, if you go back through say, five years’ worth of these balance sheets, there’ll almost certainly be trends that will help you identify the best way to move the business forward, but only if you know how to spot them.

For example, what’s your annual turnover? Your annual turnover per employee? Your annual stock turnover? What other measurements could be valuable for your business? It doesn’t take vast amounts of effort to answer questions like this for yourself, but it can open up a lot of opportunities for you to improve your business management approach.

First and foremost, you need to start focusing primarily on profit. It is worth remembering that for most businesses, 80% of their profit comes from 20% of their customers. Understanding how this works for your business is key to enhancing your profits and improving your business management. The most important step is to find out which of your customers provide you with a good margin and which of them take up a lot of your time but do not provide the same return.

Finally, you must ensure that your cash flow is healthy and can withstand any fluctuations in turnover or delays in payment. It is worth remembering that many businesses that go into liquidation are making a profit when they go under; it is cash flow that brings them down.

Above all, don’t let your finances be something vague and abstract that you never take the time to look at properly – make sure you fully understand the information your accountant presents to you and you will soon be making much wiser business decisions. Speak to your advisers, read a book or get more help online to make sure that you understand your profit and loss; balance sheet; budget and cash flow.