Lack of prudent financial management does in most cases acts as a precursor to the fall of thriving enterprises. This rule applies to all businesses across every industry no matter the size, nature or management expertise of the business. It is important, therefore, that every entrepreneur or business manager gets their business finances in order, to ensure their enterprise is in a healthy growth path.
Accurate cash-flow projection
Cash-flow simply refers to the movement of money into and out of business. A common cash-flow relationship can be derived from the formula below.
Cash-flow = Net revenue-Net expenditure
A positive yield in the above formula means the business cash-flow is healthy. The opposite is true for a negative yield. It is highly important for a business manager to have an estimated monthly projection of revenue generation. This will help in planning effectively for expenses such as marketing activities and discount offers.
Debt financing options are important sources of funds for any business. However, it is very important for a business to set a debt limit beyond which borrowing should be considered unsustainable. This may arrived at by calculating the debt-to-equity ratio. A lower ratio of may be 30% can be considered a sustainable debt level. A higher ratio of beyond 50% may strangle the business financially and lead to its collapse. Moreover, the cost of debt finance should not limit the growth and competitiveness of a business. reinvesting business profit is a common and healthy way of financing organic growth in a business.
Accounting and Bookkeeping
Bookkeeping is an essential part of any business as it enables a manager to have proper and accurate financial records. Such records are vital in paying taxes, seeking debt and equity finance and analyzing business growth. If you as an owner-manager do not have a strong financial background, you can hire the services of a professional bookkeeper who will also be available to offer accounting advice.