Financial management can make or break a small business in its infancy. Good financial planning means every business decision made is researched and well informed. It helps to guarantee the longevity of your business by ensuring that you are always looking forward. It also helps you optimise performance and drive efficiency.
On the other hand, poor financial planning is likely to see your business go bust. More often than not, when a small business fails it is because it has gone bankrupt due to neglect of financial planning.
Here we share some key tips for effective financial planning.
Carry out market research
Knowledge is power, and gaining an insight into trends and benchmarks in your industry is a critical first step for any financial plan. The knowledge you gain from market research will help inform your initial budgeting. Amongst other things, you’ll find out how much you can afford to charge for your services and what your operational costs are likely to be.
Market research also helps aid growth, and needs to be carried out prior to pretty much any business venture, whether you’re looking to delve into new markets or expand your business offering. Once you have figured out what information you need, there are several ways to go about finding it, including online research, industry surveys and focus groups.
Manage your cashflow
If you run out of finance, your business will fail, so recording and sensibly managing cashflow is essential. You need to know exactly when money is going in and out of the company, and ensure that you have a financial buffer in case anything doesn’t go according to plan.
Consider your payment terms with your clients and when they are likely to pay, and structure your outgoings around this. Invoice clients as soon as possible to avoid payment delays, and think about incentivising early payment to keep your cashflow healthy.
You should also analyse your outgoings and scope out whether there are any unnecessary costs that you can cut out or reduce. Cashflow forecasting can be carried out on a simple spreadsheet, and is a minor endeavour for what could yield major gains.
Set financial goals
Most companies will set themselves annual targets, although it’s not uncommon for firms to set goals on a monthly or quarterly basis. By setting financial goals for your business, you give yourself a standard to measure your success against. It enables you to gauge performance against your targets, identify if your business is underperforming, and inform decisions to change strategy.
Well researched and achievable financial goals have further benefits. By being able to provide a financial outlook, including a realistic assessment of anticipated profitability, your business automatically becomes more attractive to potential investors.
Consider your tax obligations
Any financial plan needs to make allowances for company taxation. Whilst you’ll be setting money aside for corporation tax payments and possibly paying employer’s National Insurance (NI), you are also advised to register for VAT and factor this into your financial plan.
As well as business taxation, take a look at your personal tax liabilities. Are you taking your personal income from your company in the most tax-efficient manner? Are there any tax planning opportunities, such as pension planning, that you might want to consider taking advantage of? These are all examples of where expert tailored guidance from Sublime can come in handy.
How to improve business performance with financial management
Basic financial planning covering cashflow, tax liabilities and setting goals can be relatively straightforward. It’s also an area where it really can pay to have some expert assistance to help make sure that your business is running as efficiently as possible.
At Sublime we specialise in offering accountancy and financial advice to small businesses, and we are geared towards helping this burgeoning sector thrive. For tailored, expert help with the financial management of your company, get in touch.