Managing Your Business Finances

If you want to succeed in business, you need to know about financial management. No matter how skilled you are at creating a product, providing a service, or marketing your wares, the money you earn will slip between your fingers if you don't know how to efficiently collect it, keep track of it, save it, and spend or invest it wisely.

Poor financial management is one of the leading reasons that businesses fail. In many cases, failure could have been avoided if the owners had applied sound financial principles to all their dealings and decisions. Financial management is not something that you can leave to your banker, financial planner, or accountant. You need to understand the basic principles yourself and use them on a daily basis, even if you plan to leave the more complicated work to hired professionals.

The basic concepts of financial management, as they apply to small business owners, start with the simplest, everyday bookkeeping tasks and moving on to more sophisticated concepts. The concepts are outlined as follows:

  • Basic bookkeeping explains how to record daily transactions, work with your accountant, and, for the do-it-yourselfers, how to close the books and draw up financial statements.
  • Credit and collections discusses the pros and cons of accepting credit cards or offering trade credit, and tells you how you can more quickly and effectively collect the money your customers owe you.
  • Cash flow management describes the professional way to manage your cash flow to reduce the lag between cash outflows and inflows, and tells how to invest the surplus cash you'll soon have on hand!
  • Evaluating larger investments in capital equipment or business facilities uses some of the same financial tools used by accountants and other financial professionals.
  • Financial analysis delves into some of the more sophisticated ways of examining your financial statements and other aspects of your business, to identify trends, spot problems before they become too large, and compares your business to others in the same industry.

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