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Guide To Managing Business Finances < Business Articles By Mast Business Directory

If you want to be successful as a businessman, you need to know how to manage finance in your business. Financial management is different from the basic skill sets like operating business tools, providing customer service, marketing your products etc. The money that you earn can easily slip between your fingers if you do not know how to manage and collect it. You should learn how to keep track of your money, save it and use it wisely for future investments. Most businesses that have encountered failure are because of lack of financial management knowledge. The dealings and decisions should be on the basis of sound financial knowledge and expertise. In the article to follow, we are going to discuss the key principles that you need to understand and develop to manage your business efficiently for long term gain and prospects.

Basic five steps

Financial management isnít a factor that you can rely on an accountant, banker or even your financial planner. Following financial management principles and using them on daily basis you can work wonders. More complicated work should be left to be done by professionals that you shall hire. Follow these five simple factors for ensuring your financial planning and management is appropriate:

Basic bookkeeping

Basic bookkeeping enables you to record transactions on a daily basis. Either leave it up to the accountant or do it yourself. Learn the basics of how books are closed and draw up statements of your finances.

Credit and collections

Consider the advantages and disadvantages of accepting credit or yourself offering credits on trades. Learn the best possible way to quickly acquire the money that your customers and people with whom you trade owe you.

Managing cash flow

Acquire knowledge on how to manage your cash flow in a professional manner. This will reduce the lags between the cash that flows in and flows out of your business. Learn your investment options. Research the market as to how to invest the surplus cash you have in hand to get a more lucrative return.

Major purchases and investing on projects

Learn how to invest larger investments in capital equipment. You have a freedom to use the same set of tools that are used by your accountants and other financial experts available.

Analyze your current financial position.

Learn better and more sophisticated ways to examine your statements of various sectors of your business. Identify basic trends in the share market; realize a problem is going to approach before the problem hits you adversely. Keep a track of your competitors and their investment plans, product launches etc. Other areas that we need to work under are as follows:

Creating a budget

Realize your inflow and outflow of finances i.e. where the money is coming from (investor options) and what are the ways to spend it wisely for lucrative returns. Never lose out on big opportunities to gain comparatively smaller short term profits. Budgeting should be done in the initial (planning) stages of the business. A business plan usually constitutes the budgeting part. Identify your business requirements and goals. Investigate as to what you want to accomplish in a business. Learn how it is feasible to obtain realization of your goals in least possible time and investment. Define the costs that are involved. Categorize your costs in fixed and variable costs. Keep a track of your balance sheet, tax returns, liabilities and fixed assets from time to time. Define your goals such that a long term project has several short term goals; define deadlines to achieve goals yearly, monthly, weekly or even go to the extent of defining them daily. Learn from your mistakes i.e. past data sheets. In situations where you do not know how much a particular factor is going to cost you, research the market and try to fit in your sensible approximations. Develop a spreadsheet for the same and occasionally evaluate your costs backwards. In this way you will learn how to best possible invest and never make such mistakes again.


A big problem when you just start your business is to fix the rates. Business owners usually do not understand how much to charge the customers in return of their services. Obviously, you have no idea how much discounts to offer in order to establish goodwill in the market. Conduct a thorough industry research. You can use good set of tools like rate calculator for the same. When your experience and expertise start increasing, your market value boosts up. Now perhaps it is the best time to increase your rates and demand more money for your expert advises/ consulting/ services. Rates are very important since it determines you income in the business. Eventually, it leads to rising up or downfall of the business. Donít make decisions on rates hastily and everything can turn haywire.

It is not a bad idea to use hourly rate calculators. You have to input your answers to basic questions like business costs, personal income, time that needs to be billed, profit margin desired, etc. The calculator outputs a basic hourly rate and the rate at which a breakeven point will be reached. You can even experiment with such a calculator. Just change the values of some factors and see how they affect the output of final rate. Some common questions asked by the rate calculator include things like rent payments, travel expenses, infrastructure costs, software costs, fees for professionals, expenses for office supplies, fees for advertising, etc.

You can opt to do the rate math yourself. Start by developing a formula. Make a good analysis of various factors that are mentioned above and discover your desired salary, billable time, payment of taxes and other expenses. Visit various websites that can give you a rough idea of such formula. This formula differs from business to business; hence this information is not readily available. If you are unsure about how to develop such a formula, go for professional consulting. Remember that when you are owner of a business, you are responsible for you own benefits like insurance, Medicare, leaves etc. Consider all of this to be covered in your basic hourly rates.

Apply the rate into the real world once you get a basic idea of what it should be from a rate calculator or a basic formula. Keep a track of services to be offered, your expertise in the market and your competitors plans to overthrow you. Remember that rates are not only to attract the customers but also for you to be happy and content for the services you provide. Never make a mistake of not charging enough money as it can lead to resentment and dissatisfaction ultimately leading to repenting starting your own business and shutting it down.

Accounts receivable

Getting paid in business is one of the most difficult aspects and quite naturally most rewarding one. Make it easy for you to achieve this with a proper invoicing process, use an easy invoicing application that is easy to manage and work upon. Let this application decide on factors such as how you are going to get payments for your services, or rather when. Being a business owner, if you do not learn how to handle those set of clients who do not make payments on time, then your business is doomed. Make sure that you make the client sign a legally abiding contract and conduct a background check on the client before you do business with him. Your contract should include details like clarified terms of payments, what are the penalties to be levied on non-payment in return of your services, know your invoicing schedule and clarify the modes and methods of payments thatís re acceptable for you. Explain the importance of due dates and how not paying within due dates can adversely affect the clients.

Reduction of expenses

Spending less on investments or rather, crunching down the outflow of cash is bound to increase your net profit and eventually the income. Optimize your business expenses to a minimum setting constraints and using Linear Programming Problem model for the same. Identify areas that you are spending more than what norms should be. Develop a plan and motive to reduce the same. Saving money can be done in a number of ways i.e. online marketing, using software which is mainly open-sourced, training your employees using modules that are available online rather than developing yourself or with the help of a trainer. Here are a few ways:

1) Open source software
2) Using VoIP telephony for long distance calls
3) Configure multiple domains using unlimited hosting plans for websites
4) Hire only qualified professionals
5) Payment of bills online
6) Family involvement in business
7) Online marketing
8) Forms of collaborations like joint ventures and partnership
9) Buying of equipment which is used or refurbished
10) Free training to employees through online modules
Thus in this article, we have seen various aspect of business management. Remember that an optimum solution for financial management lies only in reducing the money that you spend and also earn lucratively.

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