Being passionate about business does not alone take an individual to success. But the individual should know some basic financial management tips so that their business can succeed and it can grow. To have zeal is the primary starting point. After this, the individual should take small steps starting with the decision to own a small business.
Business Finance Organization
To understand finances, the individual should be familiar with certain financial terms such as expense, revenue, cash flow, profit, etc. These terms should be well understood so that an individual can manage funds.
Cash Flow – This term refers to the amount that an individual has in hand after the profits that helps an individual to grow his/her business.
Expenses – As the term suggests, it is nothing but the amount that an individual spends, which also includes paying bills, loan disbursement, tax payment, and buying material.
Profit – The amount of cash that an individual has in his/her hand after all the bills have been paid from the revenue generated is known as net profit.
Revenue – The money that an individual has in his/her hand, which is collected from the customer or a loan. The amount of money that is left to be used for spending for business is known as the revenue.
The individual needs to understand these terms well to manage finances, but along with this, they should also understand the basic documentation work to place the above-written terms in the right places.
Cash Flow Statement – This the document that has the records of all the details that include the expense and the revenue to know how much is going to be left behind at the end for reinvesting in the business.
Balance Sheet – This is the sheet that provides details about equity, liability, and asset the company has at a given point so that the net worth of the business can be estimated.
Income Statement – This is also known as P&L or Profit and Loss statement, which is going to contain the profit, expenses, business revenue, etc. since the beginning of the business.
Revenue estimation – This helps the individual to find the details about the revenue position of an individual’s company, which helps the individual to do effective budgeting.
Above mentioned are some of the basics of finances and can be of much help while managing the finances. Below are some of the tips to manage finances effectively:
Hire Business Accountant: In the beginning, an individual might not feel like spending a lot of money on hiring people because of the small business. But, a business accountant is a must since accounting skills play a major role in managing finances. The individual does not need to choose someone with high – end profile or very senior. He/she can select someone who has even basic skills but is committed to travelling and is smart enough.
Use the right accounting software: For an individual to be on the right path, the person needs to hire the right resources. Still, the individual should know accounting software. The best software will help the individual to maintain bookkeeping work in a cost-friendly manner. While hiring an accountant, the individual should check if the person is aware of using the software.
Pay your tax: The individual; should file tax every year. This helps the individual with clear records, and therefore, they could apply for a business loan. Before offering a loan, it is the tax papers that are verified by the lenders. The individual should also apply for a PAN number for their business as a first step.
Manage Credit Score: For managing finances, a credit score is another important factor. The individual who has a clear credit score has greater chances of getting a business loan. When the loan application of the individual is approved, then the individual will have more finances to invest and make a profit.
Handling expenses and managing bills does not strictly mean managing finances. But is also dependent on how smartly and sensibly an individual works on all the above-mentioned areas to keep the business in motion. The individual can follow the above-written tips to move up the ladder of success with ease.