Business finances is more than simply setting aside funds to keep the lights on. Finance is also a large term covering matters about the analysis, development, and management of funds and investments within a company. Companies typically have some type of financial business plan in place as part of their general business plans. This section of the general business plan outline the types of funding available from various areas, including investors, the company, the government, and other organizations.
The analysis of business finances is broken down into three major areas: funding, operations, and cash flow. Fundraising is often the most difficult of these three areas of finance. In general, it involves raising funds for a business by asking friends, family, and others for donations, using credit, or selling company stocks. Because there is a great deal of risk associated with raising funds, it is imperative that any venture is carefully planned and monitored by knowledgeable individuals. In addition, financing for operations and the purchase of needed supplies must be carefully managed since these products will ultimately be sold to paying customers.
Cash flow is the second area of finance that most small business owners do not pay much attention to. Cash flow is the ability of a business to effectively manage its daily expenses and meet its daily operational requirements, without having cash on hand. Proper cash flow is important to a small business owner since cash is the fuel that drive the business, and failure to manage it can result in the business failing altogether. While it is impossible to predict cash flow accurately, business owners should develop good habits about the most common methods of cash flow generation.
One way of managing cash flow is through the use of loans. Most banks provide business finance options, although many small businesses are able to obtain short-term financing from their own capital or through the employment of existing financial sponsors. Business owners should consider applying for a loan from a bank at the time of starting up the business. This helps eliminate the need for an expensive start up fee, which is often a requirement for new businesses. Some banks will allow business owners to apply for a business finance line of credit, which can be used to fund daily operation costs and at times to fund short-term cash flow needs.
A good way to manage cash flow is through the timely preparation and submission of financial statements. Financial statements provide information about a company’s assets, liabilities, revenue and expenses. Businesses will be able to report key information regarding their business finances on financial statements. These reports are essential to the management of a company’s finances and help it make sound decisions when it comes to raising additional capital, or when it comes to repaying debts.
Small business finances require that business owners plan for unexpected events such as lay-offs, vacations and bankruptcy. In order to prepare for these events, a good financial planning process is necessary, especially before they occur. In addition, a business owner should regularly review and update his or her business finances to stay on track. Managing cash flow is just one of the key measures that help businesses remain financially healthy. By following a few simple steps, business owners will find that they can handle their cash flow needs effectively and will also discover that they are more successful at managing their business finances.