AN essential part of being a small business owner is knowing how to set up and manage your finances.
Good financial management is fundamental to helping you achieve your business goals.
Your skills in this area will dictate how efficiently and effectively you deal with money.
The term is often incorrectly thought to refer to budgeting however, I prefer to use the term ‘planned spending’ as the aim is not to prevent you from spending, but rather to help you better allocate funds to achieve business goals.
Poor financial management is the reason most businesses fail (ie. the lack of profitable sales).
An example of this would be selling a lot of a particular product but each product is sold at a loss instead of a profit, so the more you sell, the more you lose.
One of the ways to improve financial literacy, is to make use of your accountant.
They’re a great resource – especially when you start-up a business.
Accountants can teach you the basics, and assist you with decision-making.
However, unless you’re a large-scale business you’re unlikely to have an accountant involved in the daily/weekly operations, which is why it’s important for you to have a good understanding of financial management.
Finance is more than just money; it’s the foundation of your business.
Understanding this will help you manage money, improve cash flow, plan future growth, meet legal obligations, identify your break-even point, maximise profits and better understand your business’ strengths and weaknesses.
The SBDC’s ‘Understanding Business Financials’ workshop will help you understand and monitor business performance, spot problems before they get out of hand and make sound financial management decisions.
If you’re concerned about how your business is performing, or need help understanding your business financials, visit smallbusiness.wa.gov.au or speak directly with an experienced adviser on 13 12 49.
Don’t miss my next article where I’ll explain how to protect your intellectual property.