Findings from a US Bank study revealed that 82% of businesses that fail cite cash flow problems as the top reason for their failure, according to statistics on Fundera. As an entrepreneur, you’re likely to face cash flow problems regardless of the industry and size of the business, and the impacts can result in business closure. For this reason, it’s essential that you create a sound financial plan, as it will help you manage risks and even attract investors. With a financial plan in place, understanding your business finances and how to manage them becomes easy. You’ll be able to identify growth opportunities and avoid mistakes that might harm your business finances. However, developing an effective business financial strategy has never been easy. To ensure you get it right, you must follow the right steps. Keep reading to learn a few tips for improving your business financial planning practice.
1. Define Your Financial Goals
Before you can make any move, define financial goals for your business. Ask yourself what you want to achieve with your financial plan. Perhaps you want to meet a target profit or revenue goal, expand your business to a new market, or launch a product or service. As a rule of thumb, make a list of business financial goals and prioritize. This helps you have a clear picture of the financial objectives and when you need to accomplish them. Also get help from a professional finance team like a hourly Colorado Fractional CFO. As a result, you’ll have an easy time writing a strategic plan for handling your finances.
2. Collect And Analyze Data
After defining goals, collect valuable data related to your business finances. Make sure to account for all your expenses, such as rent, insurance, salaries, maintenance, and supplies. Also, compile information for all revenue sources, including investments, assets, and sales. Doing so helps you get clear insights into your cash flow, profits, and losses. Once you have compiled this data, analyze it carefully. You may need the services of an accountant to speed up this process, as it takes time and can be daunting if you lack knowledge in accounting. Your accountant will help you understand your business finances and advise you which parts of your budget need adjustment. They’ll also help plan your finances and prepare for valuation.
3. Develop A Finance Process Map
Another critical step to enhance your company’s financial systems is identifying flaws that need fixing. To achieve the best results, you may want to create a finance process mapping. This step goes a long way in ensuring your finance team monitors the company’s fiscal health with high levels of transparency, accuracy, and accountability. That’s because a finance process map describes the flow of work in a specific financial order, from budget approvals to check requests and transport reimbursements.
A process map should clearly define each task when it’s done, the person responsible for the task, standards to be met, and the next steps one should take. In essence, developing a finance process map enables your organization to identify project completion time and potential barriers quickly. It’s also an excellent way to start discussing your business finance management improvements.
4. Consider Automating Your Finance Processes
Every business needs to automate finance operations to replace inefficient and error-prone processes. The use cases of finance automation include bookkeeping, account reconciliation, payroll administration, analysis, and financial planning. Automation also helps business owners to make employee reimbursements easier through automated expense reimbursement software. You can also automate billing and payment processes in accounts payable and receiving departments.
Depending on your company’s needs, you can use different technologies like artificial intelligence, robotic process automation, and Big Data to automate finance processes. For example, accounts payable automation depends on deep learning to automate invoices sent as images without a purchase order. That way, businesses can validate invoice details, identify duplicates, and create relevant accounting data automatically.
5. Leverage Existing Financial Services
In addition to automating finance processes, consider opening a merchant account and integrating it with a business bank account to streamline payment processing. While a business bank account and merchant account sound similar, there’s a big difference. Generally, a merchant account can be defined as a business bank account designed to accept electronic payments. On the other hand, a business bank account helps you manage your company funds. Although these services serve different purposes, they play a critical role in processing electronic payments, tracking, and managing business finances efficiently.
6. Prepare For Business Valuation
As a business owner, you should have a good understanding of your company’s worth by preparing a business valuation. This step helps you take advantage of opportunities linked to business expansion and planning an exit strategy for your retirement, whether it means restructuring the business or selling it. Typically, the business valuation process evaluates every aspect of your company, including capital structure, management, future earnings, and the value of available assets. That way, you can know the current worth of your business.
Improving your company’s business financial approaches is vital to preventing cash flow problems, but the process can be daunting. You must define your financial goals and develop a finance process map to get the best outcomes. Most importantly, you need to collect and analyze data, automate finance processes, leverage financial services, and prepare for business valuation.