Managing your Finances is a critical part of running your SME. For many business owners this doesn't come naturally and is often put low on the list of priorities. Owners need to consider their finances for many purposes, ranging from preparing for a rainy day to scaling your business up to the next level.
Good and effective management of finances can make the difference between your business continuously growing and being fruitful or potentially the company not being able to expand or even having to stop trading. At the SME club we are here to help business prosper and grow but also to understand every aspect of running an SME in the UK. We have put together this useful financial tips below to help you.
Manage your budget
If you don't have an annual budget for your SME it is important that you start putting one together. Having this budget enables you to manage your finances effectively and also understand if your business is on track and what you need to amend if not. This budget will act as a guide to help you make certain business decisions ahead of time. It can also help you start your plans for expansion.
Automate regular payments
Most SME business owners and directors are busy and many companies don't have or can't afford to have an employee dedicated to manage finances. It is therefore hard to remember when all payments are due and making payments manually is cumbersome and can take your focus away from your main business activities.
It may seem obvious but setting up automated payments will make your life easier and also help you avoid penalties for late payments while saving time and energy.
Choose your Investors carefully
Many UK SMEs will seek and secure investors to help their business trade and grow but finding the right investor is not just about securing the money it is about finding a business partner or advisor who understands and believes in your business and isn't just looking for a quick return. At the SME club we hear of so many businesses that have had investment but have then fallen out with investors or the investors have tried to take the funds back to quickly. The right investor will help you scale your business or keep it going during rough times. Therefore, selecting the right investors is critical to the success of your business. Research your potential investors’ and look at their most recent ventures and speak to business owners they have invested in to find out how they work.
Keep an eye on your credit score
Like all consumers your business also has a credit score and this is used to determine the credit worthiness of a business by financial institutions, suppliers, partners and even prospective customers. It gives them an idea of whether or not you will default on your debt so having a good credit score helps establish goodwill for the business and also means you can build favourable payment terms with suppliers which can help with cashflow.
Stay on top of your cyber security
Every business owners needs to pay close attention to cyber security when using online banking, e-commerce platforms and electronic payments. It is probably very low on your list of priorities but you should make a point of regularly updating your anti-virus software to ensure that your data data is protected.
Learn to understand the market and industry trends that effect your business and learnt forecast your financial position based around your business plan for the year ahead. This should help you get a clearer picture of where the business is heading and how well you are performing and what you need to do to amend. This should help you set up and manage a better strategy for your business.
Manage your debts
It is often easier said than done especially in the current climate but managing your debts are hugely important and as part of your budget you should aim to not carry any debts over to the next financial year. Ideally you should try and set up a strategy to repay debts before you look at taking out loans. I
Increase your savings
As the current pandemic has shown we never know what is around the corner so it is important for your business to have savings to fall back on. While you setting up and agreeing your budget for the next financial year, it is worth incorporating a plan to consider whether you have enough savings to cover any potential business losses and what these might be.
Use your accountant for financial advice
This is the most important advice we can give. As we know finances are a necessary part of running a business and managing them isn’t always the focus for business owners. All businesses with have an accountant and they will understand your business in a way that you may not. They obviously will help manage your accounts but they can often help with many other aspects of your finances. Speak to them about your concerns, cash flow issues and any other financial issues and they will often offer an approach or advice that you may not have considered .