How to manage finances effectively
Owners should improve cash flow monitoring processes
The next stage of starting a business is the launch phase, during which owners must manage their finances effectively.
We will cover key financial considerations for this issue to help the business owners succeed in this stage.
Chris Hani-Joe Gqabi Small Enterprise Development Agency business advisor Bayanda Mpahlwa, has identified several common mistakes that new businesses make.
These include failing to develop a strong team, undervaluing the significance of cash flow, disregarding marketing and branding, failing to undertake market research, and not having a sound business strategy.
Mpahlwa underlined the significance of clarity in every business, including its objectives, strategy, and financial projections.
He also recommends that the best method to manage cash flow is to measure and regulate how much money comes in and out of a company in order to estimate cash flow requirements effectively.
“It’s the day-to-day process of monitoring, analysing, and optimising the net amount of cash receipts — minus the expenses,” he said.
He believes that successful accounts receivable and payable administration necessitates the establishment of credit policies as well as the reduction of transaction closing times.
Mpahlwa also proposes improving communication among concerned parties, monitoring aging accounts and utilising automation technologies to track information. These techniques help ensure that financial transactions are conducted efficiently and quickly.
According to him cost-plus and value-based pricing are two viable ways for pricing items and services.
“A firm’s optimal method will be determined by its nature, client motivations and competitive landscape.”
He adds that defining life objectives, spending within your means, saving money, using debt strategically, preparing for investments, getting good value for money, purchasing insurance and mastering your financial tactics, are all important components of financial planning to help a firm develop financially.
Mpahlwa highlights that having an emergency fund budget is important for managing unexpected expenses.
“One of the best ways to prepare for unexpected expenses is to have an emergency fund that can cover at least three to six months of your essential operating costs. This can help business owners to avoid taking on debt, dipping into savings, or cutting corners on quality or service,” he said.
The business advisor recommends having instruments for monitoring and assessing financial development.
Accounting software, budgeting tools, payroll management systems, agile billing systems, financial dashboards, cash flow analysis, spending tracking, and metrics for gauging financial performance, including gross profit margin, are a few of the tracking tools available.
“The ratio known as the gross profit margin calculates the amount of revenue that remains after subtracting the cost of sales. Working capital, current ratio, inventory turnover, leverage, return on assets, and return on equity are other crucial financial performance indicators.”
He suggests that entrepreneurs make gradual improvements to their financial management abilities.
“Business owners understand regular expenses, monitor financial performance, implement systems to ensure timely payment from customers, maintain accurate accounting records, comply with tax obligations, and invest in tools and technology to streamline processes,” Mpahlwa said.