You own a business. Ultimately, you own the business to make money. But sometimes the pieces don't quite fit together.
We believe every business owner deserves to be confident in knowing what their business will pay them each year. And, if a business needs a cash infusion, the owner deserves to know exactly how much cash and when it is needed.
AT KHT, we call this Absolute Financial Certainty. It’s a powerful and simple concept. There are four areas that could affect your businesses’ financial standing.
1. Lack of financial certainty
When you’re starting a business, you tend to have a tight grip on every detail. You know everything that is happening. In terms of money, you know every dollar that is coming in and, more often, going out.
As time goes by and your business progresses, that strict focus on the numbers typically reduces. There are many reasons. Other areas of the business need your focus. There’s enough money in the bank account to cover pay runs and expenses.
Whatever the reason, many business owners lose some proximity to the numbers. Even with the best intentions, it often becomes harder and harder to keep track of the financial standing of your business at any given point in time.
2. The right business structure
Business structures do not need to be complicated. More often than not, the simplest structure is the best structure.
When assessing business structures, my starting point is to ask: What goals need to be achieved? In other words, what is the potential end goal and how can a particular structure can affect that? When it comes to structuring, achieving the best tax outcomes and protecting an individual’s private assets are probably the two most important issues.
3. Poor cash flow management
A cash management system is beneficial to your business. It notifies you of upcoming cash flow issues – so you can deal with them before they become a problem. For example, if you have issues even a week ahead of time, you’re probably going to run out of cash and will not be able to collect money from the bank or clients who need to pay up for your services.
Knowing exactly how much cash you have is important to running your business. This means you have money for salary wages and payments to continuously meet the demands of your clients and grow your business.
Budgeting is an essential task to manage your business' finances. It must be realistic and up-to-date to get the most value and accurate information out of it.
A simple solution is to have an accountant or bookkeeper assist with the budgeting to take the pressure off from you. A good advisor will step in, prepare the required documents, explain the numbers and keep you up-to-date on how the business is tracking.
The road forward
It has been said that knowledge is power. As a business owner the more knowledge you have, the greater the chance you will have of making decisions that truly benefit your business. Every business needs to budget. They need this information to function properly.
As an Accountant in public practice, the first job I do each year is prepare my budgets for my business. Without fail. I also review these budgets on a monthly basis. I update them to keep them relevant and, in conjunction with my business partner, discuss them, pick them apart and then make the decisions required to progress my business forward.