Maintaining Financial Health;

MANAGING BUSINESS FINANCE

Financial management is one of the most important responsibilities of business owners and business managers. They must consider the potential consequences of their management decision on profits, cash flow, and the financial condition of the company. The activities of every aspect of a business have an impact on its financial performance and must be evaluated and controlled by the business owner. (Woodruff, 2019)

Proper management of finance can be difficult for business owners; it is therefore important while venturing into business to educate oneself on the subject. There are several basic steps needed to be put in place concerning finance management in a business, however, the fundamental is to create a financial plan.

Financial planning involves creating the plan needed for estimating the fund requirements of a business and determining the sources for the same. It essentially includes generating a financial blueprint for the company’s future activities. This financial plan is what then informs how other financial activities are carried out.

Some other important things to note to properly manage business finance include;

Keep a Business Bank Account

One huge mistake business owners make is not recognizing the business as a separate entity. The legal entity concept states that the business is separate from the owner and should be treated as such. Therefore, it is expected that the business owner opens a bank account in the business name from which incomes and expenses that relate to the business are transacted. Further to this, Business owners should pay themselves to cater for their personal expenses such that money is not taken from the business for personal use.

Having a business account also helps to keep the books together and make accounting easier.

Business owners are advised to contact their local bank to know some of the available plans they have for small businesses as many banks have several banking options for different sectors.

Pay attention to Liquidity

Liquidity measured the ability of a business to pay its debts as they fall due. Many business owners will pay attention to the profitability of their business while neglecting the cash flows. The availability of cash is needed to run day-to-day activities, pay employees, settle debts, etc.

A profitable company may not have enough liquidity because most of its funds are invested in projects and a company that has lots of cash may not be profitable because of a lack of opportunities for putting idle cash. (Devika, 2018).

Giving attention to liquidity is necessary for managing business finance, this can be done by reducing trade receivables, increasing trade payables, and focus on fast-moving goods.

Make provisions

Provision is an amount allowed for a liability of uncertain timing or amount. It can be made for bad debt or if there are uncertainties about repayment, Depreciation, asset impairment, inventory obsolescence, etc.

Provisions are necessary to present a more accurate financial statement. Making provisions means putting a certain estimated amount in an account for probable expenses. This amount is used to offset expenses in the event of the probable event.

Making provisions will allow for certain expenses and their payments be accounted for in the same year.

Take advantage of tax reliefs

Tax relief is a reduction in the amount of tax to be paid by an individual or business. There are several tax reliefs available to businesses depending on the industry it belongs to.

Some examples, In Nigeria, tax reliefs exist for businesses that belong to pioneer industries such as Manufacture of Cements, Manufacture of Ceramic products etc.

Small business owners should look into the ones that it's eligible to and apply accordingly.

Billing Policy

Managing finances includes controlling the cash flows of the business. Unpaid invoices can create cash flow problems; business owners should have a policy in place for the collection of amounts due to them. Send invoices immediately the transaction takes place and follow up on invoices till payments are made.

References

Woodruff, J. (2009). Why is Financial Management so Important in Business? Retrieved from https://smallbusiness.chron.com/

Financial management. Retrieved from https://www.toppr.com/

Devika, K. (2018). Cute Vamp: Five main differences between profitability and liquidity.