Two businesses. Two smart leadership teams, two motivated staffs, two potential winning products. So why is one growing and the other floundering?

Three words: Smart financial planning. Whether you’re a first-time entrepreneur or a business owner aiming for an IPO, you probably know there’s a lot more to success than keeping the books in order — though assembling an effective finance team is definitely a smart move. For those looking to go to the next level, here are 10 ways to smarten up your business finances and embrace your best fiscal self.

1. Go paperless, or at least “paper light.”

Ditching paper isn’t just green; it saves you time, money and grief when it comes time to do taxes or work with an auditor. And, with the proliferation of cloud-based business tools and remote work, it’s become both easier and more important to adopt mobile access and paperless (or less-paper) practices.

Of course, we’ve been talking about the end of paper for decades. But 2021 might just be the year we finally stop rifling through reams of paper in search of invoices, if only because we’re not in the office as much to access those wood-pulp stockpiles. And, we’re looking at a dramatic decrease in the use of paper (or even plastic) money. For many customers, contactless is a “cleaner way to pay” in the age of COVID because it offers faster checkouts, more control over physical proximity and no contact with shared public devices. For retailers and those tracking employee expenses, cashless also means a more complete electronic trail.

To summarise the benefits of a concerted effort to cut paper use: Better access to data — with electronic documents, finding what you need is a matter of a simple search. You can expedite payments and avoid costly late fees. It makes record keeping easier, especially come tax time. It gives you eco cred with employees. You can get rid of that bulky copier. What’s not to like?

2. Make and manage against a budget.

The adage, “if you fail to plan, you are planning to fail” is especially true when it comes to your budget. For any business, a budget — fixed if you must, flexible if you possibly can — stands as the road map as you navigate business decisions and even plot expansion routes.

At minimum, a budget will include the money you expect to take in and the amount you expect to pay out in expenses. With those figures mapped out, you can branch out into forecasting, review any variances between projected and actual figures and make changes accordingly.

Pros and Cons of Flexible Budgeting

Pros Cons
Less-rigid resource allocation Time consuming, requires more maintenance and oversight
Allows companies to address unpredicted conditions and circumstances, like market fluctuations and business volume Limits ability to plan in some areas when budget is changing
Better enables businesses to pursue new opportunities and mitigate risk Predictions have a shorter lifespan — months rather than quarters
More accurately reflects the state of finances Less accountability to adhere to original budget
Accounts for unexpected expenses
Better cost controls

Keep in mind: This document isn’t just helpful for your team. It is one of the first things a banker, business valuation expert or outside investor will ask for. With a well-built budget in hand, you’ll be able to provide a clear view of your company’s financial health.

3. Automate your bill payments.

Paying bills manually takes time away from things like customer acquisition and product development. There’s also the real danger of missing deadlines and incurring late fees. Refine your process by embracing online banking and automating those payments. You’ll benefit from increased productivity and reduced penalties.

And, this gives you a solid foundation to expand to full-blown accounts payable automation as the business grows. AP automation buys you better accuracy with less processing time, accurate data capture, invoice matching and coding, fast approvals and less potential for fraud.

4. Save for retirement.

While most small-business owners naturally want to invest all their profits back into the company, it’s compulsory in many countries to contribute to employees and your own retirement fund. It’s important to stay on top of the right retirement savings processes as your number of employees expands.

5. Analyse cash flow.

Lack of cash is among the primary reasons businesses fail. You need to stay on top of your cash inflows and outflows. The best way to do this is to create a cash flow statement to analyse your financial health, and update it at least monthly.

While this statement is easiest to create if you have accounting software, you can also draft a cash flow statement by hand drawing from information in your balance sheet and income statement. Start by creating a spreadsheet in which you enter your company’s total cash balance at the beginning of the period you choose. This number should be on your balance sheet. Next, add all cash inflows and outflows that fall into three categories: operating activities, investing activities and financing activities. Mark inflows as positive and outflows as negative. Then, add everything up to arrive at a closing balance.

If this balance is higher than the opening balance, you have positive cash flow. If the closing balance is lower than the opening balance, you have negative cash flow. If you want to see an example, check out our sample statement.

Positive cash flow is generally a sign of a healthy company. However, a business may have negative cash flow if it is new and has spent a lot on equipment and property, or is depending on venture or other funding as it grows. However, if you are consistently facing poor cash flow, you might need to make some adjustments to staff, inventory or unit margins.

6. Protect personal assets.

Is your business a sole proprietorship? Your personal assets might be vulnerable to lawsuits. Make sure you understand the different business structures available in your market and ensure you are set up with the one that will provide the appropriate level of legal liability and tax considerations.

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7. Keep business and personal finances separate.

As a rule, personal and business finances shouldn’t mix, and for good reason. For one, keeping track of business expenses and deductions for tax purposes is far easier if you use a separate business account. Additionally, keeping business and personal finances separate, can shield you from personal liability.

While you may need to sign personal guarantees for leases, loans and credit lines when the business is young and lacks a strong credit rating, your goal should be to shift those liabilities to your business as soon as possible. Otherwise, you may be personally responsible for any debt incurred should the business default.

8. Balance work and life.

Running a business can be draining, especially when you’re starting out. There’s a lot of work and seemingly never enough time to get it done. Many entrepreneurs overextend themselves, sacrificing their personal lives for the business.

This can lead to burnout, and it can actually end up hurting your company.

If you see yourself heading in this direction, it’s crucial to take stock and reset balance. You have the power to set boundaries. Carve out time for what is important to you and stick to that schedule. Communicate your needs to stakeholders and set realistic expectations. In the end, you’ll benefit from better personal and business health.

And extend that to your employees. We now have a multi-generational workforce, and Gen Z staffers in particular may need help finding balance between their digital and work lives.

9. Debt reduction.

While borrowing makes sense when cash flow is low or a business is in a period of growth or expansion, too much debt can end up being a heavy burden. As examples like WeWork illustrate, there is in fact such a thing as too much funding.

There are several ways to save a business from succumbing to death by debt.

  • Cut costs. Do you have unused space or equipment? Consider selling it off. Is payroll to blame? Cut back on overtime and excess staffing as much as possible. Here are five more relatively painless places to cut.
  • Motivate your customers to pay up and spend more. This is a prime time to reach out and connect with your customers. Offer markdowns if that means they can pay you more quickly. Offering an incentive for early payment can be a smart move.
  • Communicate with suppliers. Ask for discounts or deferred payments. Many will work with you rather than lose your business.
  • Be honest with your creditors. Share your predicament and see if they can work with you to lower interest rates, increase your credit line or restructure repayment options. You can also try outsourcing to a debt relief company that can negotiate on your behalf to settle debts for lower rates. As a last resort, consider invoking the concept of force majeure, especially if the pandemic has hit your company hard.
  • Consolidate loans. By consolidating your loans into one payment, you can often reduce monthly costs without negatively impacting credit. Consider a business debt consolidation loan, which may be unsecured or secured with business assets. This loan allows you to deal with a single creditor rather than many. It also may land you a lower interest rate.

10. Invest in technology.

One reason software-as-a-service (SaaS) has grown so rapidly in popularity — Forrester Research estimated $170 billion globally in cloud subscriptions in 2020 even before COVID spiked work from home — is that SaaS gives even the smallest businesses access to advanced technology on a pay-as-you-go basis.

You can purchase everything from email and productivity to ecommerce and marketing software, but one area of particular benefit to small businesses is accounting suites that provide integrated financial management, planning and budgeting. While you could use a traditional spreadsheet to track your finances, accounting software is far more efficient and accurate. You can more easily track sales and inventory apart from income and expenditures. Best of all, your records are in one place and easily searchable when it comes time for taxes or auditing.

To learn more about NetSuite accounting solutions, schedule a free consultation today.