Andrew Gwadiva is the head of investment and portfolio management at Chandaria Industries.
Speaking to Sunday Magazine, Gwadiva gave 10 tips on what how small businesses can better manage their finances.
1. Let technology manage your accounts
Getting the right software to track your money can make all the difference for your business. It not only saves you time, but automating your systems will enable you to avoid common human errors that machines cannot make. You will be able to track where your money is actually going in terms of expenses, bills and will give you accurate reports regarding your finances. Most of them are also available as apps and include Quickbooks Online, Xero, Zohobooks, Freshbooks and Wave Accounting.
3. Ignorance will be your death
As great as professionals may be, you need to also be in a position to understand what the numbers are really saying when you look at them. You should be able to analyse your financial situation yourself when you go through the records kept. There are a lot of basic courses online to enable you get the knowledge you require for this. You do not need to be an expert, but you need to know enough to ensure every coin is intact. Otherwise, a clever bookkeeper or accountant will know how to ‘borrow’ while leaving everything looking fine, and you will be none the wiser.
4. Separate business from pleasure
The first order of business when you begin should be to open a separate bank account specifically for your business, completely separate from your personal accounts. Some people even go as far as banking in separate banks. Doing this enables you to track your money properly and you are sure than whatever is in (or is missing) from that account is strictly business-related. It will also appear more professional to your clients, who you want to treat you as such.
5. Cut costs, not customers
Cut costs and reduces expenses where you can, but whatever you do, do not let it affect the customer experience. It is not necessarily easy, but it is necessary, because otherwise the net effect will be losing the customers bringing the money in the first place. You can do this by finding ways to reduce waste, cut administration costs, avoid buying unnecessary things and even sharing space with other businesses.
6. Keep track of payables
You should be up to date on any money owed, because you do not want to have an inaccurate picture of your finances. Also, defaulting on payments can attract interests that your business likely cannot afford. It also affects relationships with the people with whom you do business, affecting the long-term health of your finances.
7. Have a financial forecast
It will not always be sunny in the business world, so you need to be ready for rainy days. Have a cash reserve of up to six months projected expenses that you can use in case of unexpected shortfalls, and in case you need to make unexpected big purchases. This can be in form of cash or short-term treasury bills.
8. Negotiate everything
Ensure that you are not missing out on opportunities to pay less. Always manage your expectations so that they are realistic, but you find that a lot times the asking price is not fixed or the final price. Do your research and find leverage where you can so that you are in a position to negotiate reasonable and save on those vital coins.
9. Expand wisely
We have seen big companies suffer simply as a result of unwise expansion strategies, yet small businesses are at an even greater disadvantage when it comes to this. They have less access to funding and so any decision for growth must be well-planned and well-executed, because failure is not an option. Expansion for many has resulted in death of the companies where the opposite was intended. Consult experts, be honest about your finances and ensure you can finance all the costs that come with growth.
10. Get a mentor
Those who have been there before you can help you know where you are faltering in your finances. Their experience will help you sort out financial issues that they themselves have faced before and save you a lot of trouble.