4 Important Finance Facts Every Business Owner Should Know

When it comes to running a business, you want to make sure everything is running as smoothly as possible. From the tasks your employees do, down to the handling of your financial sheets, everything needs to be optimized. The issue is however, when it comes to financials and finances, many business owners draw a blank. They are great with either innovating the company or hiring employees, but don’t know how they can optimize the finances of your business. Here are some important finance facts that every business owner should know about.

Bring All Your Financial Sheets Together

Financial sheets can present a lot of information to your company. They can let you know how well sales are going or if you have any expenses that are large and unnecessary. The only problem however with financial sheets is that oftentimes all of this information is scattered across various sheets that are all done by different departments. Wouldn’t it be easy if you could instead bring everything together? This is why it is important to have consolidated financial statements within your business. Having this is useful for several reasons. First, your company can easily access all of the information whenever they need to. This allows people to make important financial decisions easily and more efficiently as they will be able to look at everything at once.

Secondly and maybe, more importantly, is that it allows you to send out proper information to shareholders and others in the general public. If you want your company to perform well in the public, you are going to have to show them that you have strong internal performance as well. If shareholders and other people have to dig around for an extended period of time to find the information they are looking for, they are going to pass you over. Having everything consolidated together will not only make work easier for the company, but it will also make things much easier for the public as well.

Your Accounts Receivable Isn’t Cash

On your balance sheet, accounts receivable or AR for short might show that you have a ton of money, but in reality, AR is not cash, it’s money someone owes you. Often in business, deals are made using credits and payments are made rather slowly. This can result in you having a low amount of cash in the company, but a ton of AR. This can be deceiving, especially on a balance sheet because it inflates your assets.

At the end of the day, this money is not cash yet so do not spend company money thinking that you have a lot more. If you can’t collect that money, you will never end up seeing it. That is not to say that you should worry about your AR, but it means you should just be cautious with spending habits. Generally, reserve credit purchases to companies that are reputable and you know will pay you back. The last thing you want is to have a small new company owe you money and then have them disappear and collapse.

Utilize Debt Properly

When it comes to a business, the word that most owners and employees hate is debt. Debt has a strong negative connotation to it as it implies your company is doing well and that you are going to fold soon. In some cases this is true, but in others, debt is necessary if you want to bring success towards the company. If you are a startup company or you are simply looking to make upgrades to your business, you are going to have to spend some money to achieve this. By undertaking a bit of debt, you can make these changes without completely exhausting your cash reserves.

The point of undertaking debt is so that you can put your company in a position where you can make even more money, therefore making the debt extremely easy to pay off. Borrowing money at the right time can have fantastic effects on your company and can help push you to the next level. That being said, we do want to remind you of the dangers of debt that is not undertaken properly. Don’t shy away from debt, instead use it as a tool to properly grow your business.

Plan and Predict Your Finances

When it comes to businesses, a lot of mistakes owners make is that they don’t even attempt to forecast and predict what is going to happen. When we say predict, we also mean realistically taking a look at things and attempting to gain an understanding of what is going to happen. By making these predictions, you can prepare yourself for what is to come and therefore equip yourselves to be able to handle things.

Are you predicting a slow quarter? Look to start saving money or even making budget cuts now so that you aren’t affected too much financially. Are you expecting a ton of growth in the next year? Now is the time to start expanding and onboarding new employees so that you can take full advantage of the growth when it occurs.

Whether it be positive or negative, you need to take the time to plan and predict what is going to happen to your company. This can put you in a good situation in the future as you won’t have to scramble for extra money or lose out on a massive opportunity. Planning your spending and your future is a great way to keep track of your finances and ensure everything stays on track.

These are four important steps any business owner should take when it comes to finances. It can be overwhelming at times, especially if you aren’t a finance savvy person, however it is important that you understand all of it and know how to react when the situation arises. If your company is large enough and you still are struggling to understand, you can hire a finance team that will take a look at things for you and helps to ensure your company stays healthy. The worst thing that you can do with finance is neglect it and ignore it. What changes do you plan on making to your company regarding finances?