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31 January 2014
Top financial management tips
Half of accountants believe SMEs aren't in control of their finances and only plan for the short term, with many maintaining a 'batten down the hatches' mentality, a recent survey has revealed. Here are our tips for successfully managing your finances in the long term.
According to the survey by ABN AMRO Commercial finance, 48% of accountants say clients find their finances complicated and confusing while 40% say SMEs are burying their heads in the sand when it comes to their financial affairs.
But this doesn't need to be the case. With just a few simple changes and the right advice, you can get a hold of your finances.
Have a plan
If you don't know where you're going, you can't expect to know how to get there – or even when you have achieved your goals. A clear business plan will establish where you are and where you want to get to over the next few years. It will also stop you from having to react in a knee jerk manner to short-term problems.
This should be backed up by financial targets, budgets, profit and loss and cash flow forecasts.
Know your financial position
You should monitor the progress of your business regularly. On a daily basis, you should know exactly how much money you have in the bank, how many sales you're making and your stock levels. Every month you should review your position against the targets set in your business plan.
Cash is king
Profit may be sanity, but even the most profitable companies can grind to a halt if there isn't enough cash to cover your day-to-day costs such as rents and wages. Know the minimum your business needs to survive and do not go below this.
Keep your books up to date weekly
Don't be tempted to put off doing your paperwork, otherwise you not only risk falling behind and ending up in a mess at tax return time, but you could risk failing to invoice a customer and losing out on money.
Meet tax deadlines
Failing to meet tax deadlines for filing returns and payments can be a costly business as you'll incur fines and interest on those fines. What's more, these are unnecessary costs that can be avoided with a bit of forward-planning.
There are many ways that you can help reduce your tax liabilities and it's important that you get advice to ensure that you take advantage them.
Don't let unpaid debts lay idle. Debts are your money tied up in someone else's company and, unless you're a funder, we'd guess you're not in business to finance theirs. In the first instance, you can probably chase your own debts with well-written first reminder and final demand letters (available in our Credit Control Guide), but if you need extra assistance, you may need to use a debt recovery service.
Become more efficient, save money
Is your business running at its most efficient? Look at where you could possibly make cost savings by reviewing your bills. Call us on 0845 120 1722 to find out how Forum membership can help you to cut your costs.
Control your stock
Effective management of stock can improve your cash flow. By buying in only the stock you need, it ensures that your working capital is not tied up unnecessarily.
Get the right kind of funding
Smaller businesses traditionally rely on business overdrafts and personal funding when they need finance, but this might not be the best kind of funding for your company. Find out more about alternative sources of finance.
Spread your risk
Don't rely on a small number of customers too heavily. If they become insolvent or suddenly switch to doing business with your competitor, the impact on your business could be catastrophic.