In these tight economic times, it is critical that the business owner pay attention to the financials of the company. Money is very hard to come by and revenues are falling while expenses are increasing. To stay in business the savvy business owner needs to take these seven steps:
• Keep good records
Every revenue and expense transaction should be recorded and preferably in one place. Do not use the shoe box method but rather, invest in a computerized financial package like Peachtree or QuickBooks.
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• Keep a Separate Business Bank Account
Never mix personal and business income or expenses. Keep them entirely separate.
• Forecast revenues and expenditures
Have a business plan and learn to forecast revenue and expenses at least three months ahead. Build a budget that shows the availability of enough funds to run the business operations. If you’re an existing business, you should use numbers from prior years to forecast. Remember a business plan is a living document so be prepared to modify the plan and the financial forecasts as conditions change..
• Manage cash flow
Always compare actual revenue and expenses to the forecast and make sure that there is enough cash to cover expenditures. You also need to have enough cash to pay the government the amounts withheld from employee paychecks when they come due.
• Manage accounts receivable
Receiving payment from your customers in a timely fashion gives you the cash you need to pay your expenses. All customers granted credit should be aware of your standard policy for payment.
• Review financial statements
There are three basic statements which need to be prepared and reviewed: the balance sheet, the profit and loss statement and the cash flow statement. These statements will also be important if you need to get a loan to help with your cash flow.
• Keep sufficient cash reserves
Your company’s cash reserves are the funds available to meet its needs for cash, especially unanticipated needs. You need to maintain sufficient reserves to be used in an emergency and should be replenished as soon as possible. Reserve options include CD’s, marketable securities or even your personal borrowing ability so that money can be put into the business on a temporary basis if needed.