Keeping on top of your personal finances is hugely important if you want to enjoy a secure future without financial pressures and avoid getting into bad situations. The same is true when it comes to the business finances of any business you run.
If you have a small company, you may think everything is okay as long as you aren’t clearly making a loss or encountering serious cash flow problems. However, if you are not doing enough to control your finances, you are losing out on a lot of benefits as well as exposing your business (and by extension your income) to uncertainty and risk.
Looking After Your Business Finances
Here we look at why good financial control is important in a business of any size:
Planning
When you have a firm understanding of exactly where money is going within your business and have good processes in place for financial management, it is far easier to plan for things that you want to do to help your business grow.
Whether it is expanding to a new location, hiring more people, or launching a new marketing campaign, without a good grasp of what your business’ financial state is you can’t really make good plans. Good financial management makes forecasting for the future not only possible but worthwhile, enabling you to make decisions and strategize more effectively.
Risk Management
Managing risk is all about identifying what potential problems your business may encounter, how likely they are, and what your plan is if they happen. Even small things like a major client paying an invoice late can introduce serious risk to your business that you really need to plan for, but without good financial control, it is hard to see where your risks and dependencies lie.
Risk is everywhere and can come from major and minor sources. For example, do you know how affected your business would be if the pound dropped suddenly in value against the euro? Or, if one of your suppliers went out of business? Without a good handle on your finances, you aren’t in a position to do effective risk analysis, and this can expose you to devastating consequences.
Compliance
Another area where you can fall down if you don’t manage and oversee your business’ finances adequately is with regulatory and tax compliance. In most cases, you should be auditing internally as well as getting a reputable third party auditor in to review your finances.
This will not only help avoid very costly and dangerous compliance issues but also help boost your credibility as a business, particularly among any investors you may be looking to attract.
Saving Money
A final reason why good financial management is important in your business is that it will stop you wasting money on unnecessary overheads or bloated business processes. Streamlining your business can make a huge difference, but you can’t identify where you are leaking money if you don’t go through your finances with the proverbial fine-toothed comb!
If you are concerned you are not currently managing money tightly enough, then now is the time to get a firmer handle on your business finance.