Business Financial Management Mantra for Small & Medium Business Owners!

Business Financial Management Mantra for Small & Medium Business Owners!

Small and Medium business Owners, Professionals and Self Employed what they SHOULD know about their Business Financial Management

Many budding Businessmen and Professionals have great ideas and passion for their businesses but they lack the discipline and vision for managing finances for their businesses. It is important to understand that it is not enough to have the knowledge of their craft or great business ideas but it is very crucial to manage the finances of the business which is the backbone of an enterprise.

Following points you can consider to implement:

Keep proper accounts of your business from the start and if not done start immediately
Most small business owners don’t keep proper accounts of the Inflow and Outflow of their business.
They just file the return at the end of the year through a Tax Consultant by just scrambling the Income and expenses as part of formality and compliance.
This results in them not having any clue about their finances. This can result in sabotaging their long-term plan.

Remember the Profit and Loss Account and Balance Sheet is your tool to navigate your business and not just for formality and compliance.

Differentiating between Business Finance vs Personal Finance-
It is important to differentiate between PF VS BF. What that means is, realise that Business goes through cycles and it is important that you don’t jeopardize your personal goals in case of business going down.
One basic step to implement is considering your business as a separate entity apart from you.

This means making sure that you draw a regular salary every month from the business.
This will also help you to take out some part of the profit form the business and not reinvest everything back into business.

Personal Goals-Diversification of Profit-Discipline

You need a CFO-
All big businesses have CFO”(Chief Financial Officer). His job is to look after entire Financial strategy of the company. It includes strategizing, financing the company, Tax Management etc.

In the case of SME the owner tries to do everything including taking financial decisions.

This is futile because of two reasons
1. In most cases he doesn’t have the expertise.
2. He is wasting time on working on something which is not his domain.

But many SME do that because they cannot afford a full-time CFO.
But there is a solution -nowadays many CA firms are offering CFO outsourcing services which are affordable and do the job.

Debt vs. Equity
This is a crucial decision, particularly for capital-intensive businesses such as Manufacturing, Hospitality, Restaurants, etc.
Too much leverage (Loans) can fail the business and being too conservative (Not taking any loans) can limit the growth of the business.
So the entrepreneur has to strike a fine balance. This is where a CFO can help you. With proper analysis, he can help you make an informed decision.

Business Succession Plan
Many small and medium businesses are family owned. When the owner nears retirement it is important that he plans the succession of business.

Most owners want their children to succeed in their business but in all cases it is not possible.
So it is important that he chalks out a business succession plan in advance.

It may include structuring a company as per the succession plan, creating a Will etc.

Whatever the case may be, it is important that the owners consider all possibilities and create a succession plan with help from the CFO, Tax Consultant, Financial Planner and Lawyer.

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