2. How to Plan Your Finances
Businesses of all sizes must carefully plan how they will obtain and utilize their finances. For business owners, this is among the most stressful aspects of running a business. To get started, simply take time to understand the initial costs that must be incurred, the project sales a company expects to make and the projected cash flow of a business.
Initial costs refers to the costs necessary to be incurred before your business can begin operating. For a Hong Kong retail business, these costs typically include equipment and supplies, costs to obtain business licenses and permits, inventory costs and employee salaries.
While some costs will be well-defined in their amount, such as application fees for business licenses and permits, others may not be. However, by simply identifying what costs must be incurred, business owners will be able to set more accurate goals for themselves and their business.
In order to make smart business decisions, a business owner needs to know where their business is headed. To strengthen one’s outlook on their business, they need to be able to estimate the amount of sales they expect to make.
Because there is a close connection between sales and expenses, looking at the past patterns of a business can provide tools that will allow individuals to create more accurate budgets and manage their business expenses. One such example of how sales projections help is that they provide greater certainty in regards to how a company is fairing in regards to meeting their break-even point.
A business failure is more commonly attributed to improper cash flow management than it is to a lack of profitability. In order to satisfy their cash flow obligations such as salaries and rent, businesses must proactively take steps to understand and manage their cash flows. Common ways to do so are:
Stay on Top of Invoicing
The longer an invoice is unpaid, the higher the likelihood of a business never receiving payment. Reducing the time between sending an invoice and receiving payment can make a big difference.
Manage Your Business Expenses
Conduct regular reviews of your business expenses to help identify costs that can be cut, or encourage you to take alternate actions. The use of cloud-accounting platforms can assist greatly in this due to their ability to integrate with various third-party platforms – thus providing business owners with high levels of transparency on their company health
Build a Cash Reserve
Cash reserves can help smooth over any fluctuations in a business’ cash flow as a result of seasonality, loss of major revenue streams or other causes. Simply set aside a ratio of your profits and a cash reserve should slowly accumulate.
Being able to rely on emergency funds can not only help with cash flow issues, but can also provide a greater sense of security for business owners as unforeseen circumstances may no longer derail their business.