For all those entrepreneurs and businesspeople who manage their business finances by themselves: ¡This guide is for you! Focus on these essential points to guarantee success and financial stability.
As the person in charge of a small business, if you don’t have a financial director or consultant, it is essential that you understand and control certain key financial aspects to ensure your business’s success.
ESSENTIAL ASPECTS IN FINANCIAL MANAGEMENT
? 1. Cash Flow: The Key Piece of Your Finances
Imagine cash flow as the money that comes in and goes out of your business, similar to how your personal bank account works.
It is important to monitor your income (money you receive) and expenses (money you pay) to ensure there is always enough money available to pay your bills and keep your operations running.
This will ensure that there is always money available to cover your accounts and continue operating smoothly.
?2. Budget and Projections: Plan to Prosper and Navigate into the Future
Create a detailed budget for the year that reflects your expected income and estimated expenses. Stick within this budget and then analyse any variations you have had compared to the budget and make adjustments if necessary.
Making projections allows you to anticipate your future income and expenses, offering a long-term vision. Keeping these estimates up-to-date will help you be prepared for possible challenges and opportunities.
? 3. Accounts Receivable and Payable: Optimize Your Cash Flow
Accounts receivable is the money your customers owe you for the products or services you have provided them. It is important that you set a maximum collection period and manage these accounts to ensure that your customers pay you on time and avoid cash flow problems.
By reducing the average collection period, we increase our cash flow, need less financing to cover our regular operations, and therefore increase the efficiency of the company.
On the other hand, accounts payable to suppliers and creditors serve as cost-free financing since, if for example we pay in 30 days, during that time we have that money to buy more stock, pay short-term debt etc., therefore, it serves as financing, but we do not pay interest unlike bank debt.
? 4. Cost Analysis: Improve Efficiency.
Identify and categorize costs, both direct and indirect, and look for areas of improvement.
Direct costs: are those attributed to the product, that is, all those you need to manufacture or acquire the product.
Indirect costs: operating and general expenses are those that are not essential to manufacture the product: light, administrative salaries, rents…
You will be able to reduce unnecessary costs and increase your company’s profitability.
? 5. Profitability of Products/Services: Focus Your Efforts.
It is important that you examine which products or services of your company generate more income and which may be less profitable for this it is crucial to calculate the margin for each product or service.
This will allow you to focus your efforts on what works best and consider adjusting or eliminating those that are not giving the desired results.
⚖ 6. Break-Even Point: Financial Sustainability
The break-even point is the sales level needed to cover all your costs, both fixed and variable, at that point the profit is zero, you neither make nor lose money.
That is, it is the point from which your profit is zero, from that level of sales, you start making profits. It is crucial to know this point to understand how many units you must sell for your business to be profitable, how many maximum fixed costs you can have, or how much is the income level you must achieve to cover costs.
Knowing your break-even point not only indicates when you will start making profits. Knowing this figure gives you a clear goal of how much you need to sell and helps you define strategies to surpass it.
? 7. Inventory: Maintain Control and Save
Checking your stock weekly to maintain adequate balance helps you avoid unnecessary storage costs and ensures that there is always enough inventory available to meet your customers’ demand.
Calculate the variation in stock:
Initial stock + purchases – final stock.
?8. Price Analysis: Competitive Strategy
Regularly reviewing the prices of your products or services ensures that they are aligned with your costs and market analysis.
A price analysis helps you maintain a competitive edge and maximize your income.
?9. Debt Management: Use Debt Wisely.
Indebtedness is not intrinsically bad; it can be a valuable tool if managed correctly.
Financing plays an important role in the growth of companies. It really increases the profitability of the company as long as the cost of debt is lower than the profitability of the assets where we will invest.
Analyse the quality of your debt and make short to long-term debt restructurings.
You will use financing to your advantage, promoting growth and minimizing risks.
? 10. Profitability Analysis of Projects or Investments: Decide with Clear Data
Before embarking on new projects or investments, it is important to evaluate whether they will be profitable for your company. This involves analyzing the costs involved and the expected benefits.
Evaluate the potential return of any new investment.
CONCLUSION:
By paying attention to and properly managing these financial aspects, you can make informed decisions and maintain the financial stability of your small business, allowing you to continue growing and reaching your long-term objectives.
Financial management is not just an administrative duty, it is the map that will guide you in every decision, ensuring that your business not only survives but thrives and stands out in the market. Don’t let the complexity of finances overwhelm you; use this visual guide as your compass, and remember that behind every number is a vision towards the future.
You have the tools! Now, it’s your turn to apply them and take your business to the next level. ?
