Of all the surprises and unpredictabilities that may happen in the lifespan of a business, the one area where a business owner should never be surprised is their business finances. It is astonishing how many business owners are guessing at the financial health of their company. Equally disturbing are the entrepreneurs who look at the company bank account and estimate how good they are doing because there is "money in the bank."
In business, just as in a personal budget, it's as simple as this: you have to know your cash flow like the back of your hand to truly understand your company profitability. Here are eight reasons why you should know your business finances. The life of your business depends on it.
1. You Can Create a Business Budget Plan Ahead of time
Being strategic in business means maintaining the ability to be proactive and not just reactive. There are enough things that you won't be able to predict like changes in the market, rising cost of fuel or utilities, or other things that affect your cost of doing business. When you know your numbers from top line to bottom line, you can better anticipate and allocate funds for future growth.
We all have a few control issues. While running and growing your business being a control freak when it comes to your budget is a good thing. Pay attention to everything. You will get fake invoices, overcharged, and defrauded if you aren't a control freak with your numbers.
3. You Can Respond When Opportunity Knocks
When you know your numbers and where you stand with your cash flow, it's possible to take advantage of unanticipated opportunities. You can increase inventory or take advantage of cost reductions of needed supplies. There may be a marketing opportunity you can take advantage of because you are aware of your company's financial position in detail.
4. You Know How You Should Be Spending Your Marketing and Sales Budget
All revenue is not created equal. When you are aware of your margins and profitability as well as your individual cost of goods sold (COGS), you are able to be strategic when it comes to marketing or running sales. You may be able to invest in more into your marketing strategy whether that includes spending more time on content marketing, investing in brand awareness campaigns or direct marketing campaigns like Google Adwords or email marketing.
5. You are More Likely to Be Prepared for an Unanticipated Crisis
There will be issues. Equipment will break down, materials get ruined, or any number of unplanned expenses. But there's a difference between dealing with a crisis when you have money and when you don't have money to cover the costs. When you're stuck in a ruck and trying to find money immediately to cover costs can cause a ton of stress as a business owner. On the other hand, when you have budgeted in "unplanned expenses," you'll be able to handle these crisis situations much better. Before times like these happen, you may think about getting a business line of credit to cover these unanticipated expenses.
6. You Know When It's Time to Hire and Expand
Success in business always comes at a cost. At some point, as your business grows you will have to add people, have more space or buy new equipment. A great indicator is when you realize that your growth trajectory is going to be interrupted because of an increased demand. Your cash flow model is a great tool to help you forecast those growth elements.
7. You Can Stay Ahead of Operating Expenses
No business owner ever wants to worry about making payroll or paying rent. When you are on top of your budget you know the monthly expenses and can project operating expenses for months in advance and prepare if there are anticipated shortfalls.
8. You Can Apply for a Business Loan with Peace of Mind
If you need a loan or if you are looking for investors. Having a clear understanding of your budget and financials is the first step in getting the yes that you need. Small business lenders and investors are less likely to give you their money if they realize you don't know what you are doing with business finances.
The devil is in the details and the financial promised land is in managing the pennies and the nickels to ensure that your company is performing and positioned for success today and in the future. Having a working financial model and staying on top of it will make you a master of your business and keep your company strong and thriving.
Grow Your Business with Small Business Funding and This Free ebook
Cash is king. If you're a pro at managing your business expenses and company budget, you'll be able to have more flexibility when it comes to growing your business. Getting small business funding in the form of a business loan, line of credit or account receivables financing could be the right step. StreetShares offers flexible business financing that's right for your business. Contact us to learn more or apply now. Know you're not ready for business financing? Learn more about how you can grow your business with this free ebook. You'll learn ways to grow your business such as building brand awareness, maximizing your customer base and more. Download it now.