The SME market is the lifeblood of British business. At the start of 2020, there were 5.94 million small businesses in the UK, making up 99.9% of our domestic business population. In the UK’s private sector, SMEs account for approximately 60% of employment and half of the turnover, with total turnover for SMEs sitting at £2.3 trillion.
Significant numbers, then, and every day, budding entrepreneurs are beginning their business journey in the hope of making it big. However, in such populated markets, creating a successful business comes down to much more than a good idea and hard work, and modern business owners must have a firm grasp on every aspect of their business to stand themselves in good stead.
With the majority of start-up businesses failing within the first three years of operation, and cash flow problems being one of the primary reasons behind said failure, one area business owners must be clued in on is operational finances and the management of them. Here, we discuss just how important good financial management is for your business, and how you go about implementing it within your infrastructure.
The Importance of Managing Your Finances Correctly
In the UK, 20% of start-ups are out of business by the end of their first year, with 60% done by year three. The reasons for business failure are highly diverse, but the most prominent – behind a business finding an insubstantial need for its services – is simply running out of cash, with 29% of start ups succumbing to cash flow problems.
Why do businesses run out of cash? Naturally, there are many businesses who simply don’t enjoy the success to produce the revenue required to have adequate cash flow, but for every business that doesn’t have the money coming in, there is another that faces disaster through poor financial management rather than direct revenue issues.
This is where proper management of finances shows its worth. By staying on top of the fiscal details beneath the surface of your business, you do a better job of stabilising your business and make it less likely to fail. Maintaining finances to the level required is an issue for many small business owners who don’t have the financial nous to carry out the necessaries, but good financial management is a practice that can be learnt by any owner willing to apply themselves.
As your business continues to grow, you should consider outsourcing some of the financial services. Figure out which services make sense – whatever you struggle with and whatever takes the most time away from you and the business.
Top Financial Management Tips for SMEs
If you do find yourself in that not-so-clued-in crowd when it comes to business finances, the best thing you can do is look to get on top of the fiscal essentials within your business as quickly as possible. In terms of what good business finance means, there are a few cornerstone rules for every business owner to follow in their pursuit of sound financial management:
- Pay yourself: for well meaning business owners, the idea of not paying yourself can seem like the right thing to do but, as honourable as it is, you should never neglect yourself completely – even if it is for the “greater good”. If your business fails, you won’t have paid yourself a penny throughout, so ensure you’re fairly compensated for the work you do.
- Invest in growth: it’s essential to look for growth opportunities in business when and where they present themselves, as this is the best way to push yourself in a healthy financial direction. Investment in growth can see you expand, innovate and attract top talent. Not sure what you’re doing? You can get professional advice on how to capitalise on growth opportunities.
- Monitor your books: an obvious suggestion, but an often forgotten and neglected one in a busy business world. Afford yourself regular timeslots to go over your books, and you’ll get to know your business and the inner workings behind it better. You’ll also be able to spot financial trends and concerns quickly, and act on them appropriately.
- Plan ahead: while undoubtedly you’ll spend each and every day with very present business challenges to address, make sure not to forget about the financial hurdles that could be just around the corner in a week, month or a years’ time. Many businesses’ cash flow problems come from a lack of foresight, so if you can install some into your business, you’ll help to mitigate financial risks significantly.
You can find plenty more fundamental financial management tips via Business News Daily, all of which will contribute to the financial stability of your business and hopefully put you ahead of your competition when it comes to those all-important budgetary concerns.