There are a lot of financial considerations to bear in mind when you start your own business. You need to think of things like financing the business, financial risk management and possibly financing new premises. You also need to decide if you are going to manage the finances yourself or if you’re going to outsource them.
The problem with outsourcing financial management services is that you have to pay for it – obviously. The problem with keeping it in-house is that you need to know what you’re doing, as you can do your business no end of harm (not to mention incur legal penalties) if you get it wrong.
If you keep your financial management in-house, you still have to decide if you’re going to hire a bookkeeper/accountant or if you’re going to do it all yourself. If you hire a bookkeeper you’ll have to pay her a monthly salary, which will eat into your operating costs.
If you do it yourself, you’ll probably have to pay for some financial courses. But, these are a once-off expense.
Another, mostly, in-house option is to manage the day-to-day bookkeeping yourself and have a professional accountant put all the information into proper monthly reports and to ensure that you haven’t made any miscalculations or left out any pertinent information (unintentionally, of course). Or, you could save your trip to the accountant for only the really big things, like annual tax returns.
Outsourcing your financial management needs means that you don’t have to worry about tricky calculations regarding employee benefits and bonuses – or any complicated calculations, for that matter.
But, according to Small Business Notes, you will still need to maintain basic financial records, like cash flow, petty cash, and bills and invoices due, as well as your bank balance and the state of your budget.
According to John Kennedy Akotia, cash flow management is one of the most important factors affecting a business’s success; it’s also one of the most neglected. Cash flow doesn’t just include money coming in and going out of your business. It also includes things like forecasting, expected and current collections, and expected and current payments, as well as planning and investment.
It’s important for all business owners to become familiar with the cash flow cycle. Akotia says that the cash flow cycle is the time between paying expenses and receiving income. Unfortunately, many clients aren’t in a hurry to pay what they owe you, which means that you might have a bit of a crisis on your hands when it comes to paying salaries and essential overheads. This why forecasting and planning are so important. It also underlines the importance of budgeting and maintaining a minimum cash balance.
It’s obvious to anyone with a grain of common sense that sound financial management is essential to a business’s success. It’s up to business owners to decide what role they want to play in financial management; for example, if they want to be very hands-on or if they’d prefer to let someone else take the reins.
However, even if owners decide to outsource their financial management requirements, they still need some financial savvy so they can properly manage their day-to-day expenses, cash flow and budget.10
Written by Sandy Cosser on behalf of Now Learning, a higher education portal that promotes a range of courses in Australia, including finance, aromatherapy and healthcare.