Having strategic financial management is essential to make your business more competitive. Check out 5 tips for entrepreneurs to achieve this result!
Managing the finances of small and medium-sized companies mainly involves organizing the money that comes in and goes out of the cash register, analyzing these numbers and, from there, planning how to reduce costs and increase profitability.
Financial management is one of the essential steps for the success of a business — especially if it is small or medium-sized. After all, it helps the company to have the resources it needs to maintain itself and grow. Therefore, it is worth knowing some management tips for entrepreneurs.
In addition to keeping the business safe, good financial management is also a competitive advantage. It is based on this that a sales price, a discount policy and even a marketing budget can be correctly defined, for example.
Want to optimize your company’s financial management? Discover 5 tips for beginners and experienced entrepreneurs!
1. Separate personal and business finances
In the financial management of micro, small and medium-sized businesses, a problem is common: the lack of separation between personal and business finances .
This means that the entrepreneur pays personal bills with money from the business or that corporate payments are received in the individual account. However, this mixing of amounts impairs the view of the company’s real financial situation.
Therefore, it is not possible to know what the company’s true performance has been over time. To avoid this situation, it is best to have one account for an individual and another for a legal entity. This requires discipline to completely separate all financial transactions.
So you shouldn’t make withdrawals from the company’s account, for example. Instead, establish a pro-labore value , which is a type of remuneration for the entrepreneur. With it, you will have greater control over the financial issue and avoid problems related to dividing the bills.
2. Create a business budget
Among the financial management tips for entrepreneurs is the need to make a complete plan. This tool will help define the best way to manage business finances, guiding decision-making and evaluating results.
In this financial planning , you need to consider what the business’s objectives are. After setting the goals, it is necessary to develop a business budget .
Its objective is to plan the distribution of resources between the various sectors and tasks of the enterprise. This way, it will be possible to know exactly how to use the money to fulfill obligations and facilitate the achievement of objectives.
Furthermore, this is a way to exercise greater financial control, as it becomes easier to predict where the money should be directed. Therefore, the budget is an important resource for increasing the overall security of the business and management.
3. Control cash flow
To manage business finances, it is necessary to use strategic tools that help control information. One of these resources is cash flow , which aims to record all of the company’s financial transactions.
By using it, you can identify which resources entered and which left the enterprise in each period. This way, you will be able to check if there are any expenses not foreseen in the budget and if the strategic planning has been fulfilled, for example.
You can also use the projected cash flow or the accrual basis. It is made up of accounts receivable and accounts payable. This way, you can understand which periods require more cash resources and when there is greater financial availability.
It is important that the cash flow — projected or not — is constantly updated. Therefore, it is worth doing so and analyzing the data daily, as the information provides greater visibility into the company’s performance.
4. Reduce customer defaults
To attract customers and convince them to close a deal, it is common to offer different payment options. However, it is important to be careful with payments made in installments, due to the risk of default.
This situation occurs when the customer does not make the payment within the agreed period, leaving the amount pending. The problem is that default can cause financial imbalance, compromising the continuity of the business.
For this reason, it is essential to measure the default rate. It serves to indicate the volume of late payments in relation to the total amount owed by customers. This way, you can easily monitor any defaults.
In addition to measuring, it is necessary to implement measures to prevent or reverse defaults. For example, having a stricter credit granting policy or a consolidated collection strategy — using a collection rule, for example. This way, it is possible to maintain a more balanced cash flow.
5. Analyze performance reports
In addition to putting these financial management tips into practice, microentrepreneurs and entrepreneurs of small or medium-sized companies must be concerned with the data used for decision-making. Therefore, one of the recommendations includes analyzing financial reports.
You can use, for example, the Income Statement ( DRE ). It indicates whether the company is making a profit or loss and the composition of revenues and expenses. From this, it is possible to identify where the bottlenecks are in order to outline corrective actions.
There is also the possibility of analyzing customized reports. You can define which indicators you want to monitor to have a specific view of parts of the business — such as profitability and pricing .
In general, it is essential to use reports to understand what has worked and what difficulties there are regarding finances. This way, you can make informed and efficient decisions, increasing the company’s chances of standing out in the market.