Seven financial tips for business survival

Many entrepreneurs shun accounting as long as customers keep coming

In Summary

• Businesses set themselves up to fail by ignoring financial management


Financial management is a must for any business to survive, but many entrepreneurs don't pay attention to it as long as customers keep coming. This is why businesses that were doing well ended up crashing.

Products run out of the shelves because somebody forgot to call the distributors. Tax returns are filed late, resulting in costly fines. Loans eventually become unaffordable. The sales staff supply goods or services to customers but forget to follow up on payments. Theft by employees destroys a business if not detected early.

The perils of not paying attention to detail call for entrepreneurs to keep a close eye on income and expenses. Any mismatch or shortage must be explained by the person responsible. Below are seven general tips on financial management for your business.

1. Prepare a budget: Calculate your business costs, such as wages, water and electricity bills, rent, transport, permits and licences. Set targets in terms of how much profit you must make after subtracting expenses. Spend money wisely by not buying unnecessary equipment. Prepare a plan on how to increase sales.

2. Monitor your finances: Keep accurate records so that at any given time, you know exactly how much money is coming in, how much is going out and how much you are saving. Savings will keep your business going during quiet periods. Know the minimum cash your business needs to survive and ensure you do not go below that level.

3. Get customers to pay on time: You might have many clients but, if they are not paying, your business will be in trouble. Issue invoices as soon as the client accepts the goods or services, and make regular follow-ups. Be careful about selling goods on credit. A customer who used to pay promptly but is now getting late on payments is most likely in a financial crisis.

4. Pay the government on time: Set reminders so the various taxes, permits and licence fees are paid on time. Late payment attracts penalties and interest. These costs can be avoided by filing returns and paying before the respective deadlines.

5. Get professionals: If running a fairly large business and you are not familiar with accounting, get a qualified professional to handle financial records. A professional accountant can also help with tax returns so you don't overpay or underpay the tax authorities. Underpayment of taxes will get you in trouble in future.

6. Control your spending: Save on energy costs by using equipment and vehicles more efficiently. Lots of energy is wasted, for example, when freezers are left open for long periods. Find out from similar businesses how they manage their costs. There's nothing wrong with learning from competitors. Ask if certain payments can be done in instalments instead of one large lump sum.

7. Be careful with loans: At some point, every business will borrow money to finance new equipment, to expand or to take care of an emergency. Understand the terms of the loan to ensure you can afford the regular payments.

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