How to manage the finances of your small business

Studies have shown that when many businesses fail, it is largely due to poor financial management. It becomes clear that one of the keys to the long-term success of your small business will be not only having sufficient capital and financing, but also properly managing your finances. Some of the principal aspects that are involved in managing your small business finances will be: planning, to identify your financing needs; comparing the different types of financing available, in order to obtain the most advantageous terms; projecting your cash flow to anticipate and prepare for cash disbursements; and monitoring and controlling your expenditures and financial activities. When a small business owner can successfully manage this task, then their small business stands a much better chance of success. Here is what you need to know about how to manage the finances of your small business-

• Consider using your own resources, without sacrificing your personal or family budget-Using your own resources, (and those contributed by your partners, if applicable), may be one of the most efficient ways of financing your business. This is because you will not have to pay interest, and will not have to give up an equity interest in your business, to a third party. However, it is crucial to understand that you should not over-extend yourself, and use money that you and your family need to pay living expenses, and maintain your standard of living. Remember that having your own business means taking on personal responsibility, and commitments, but imposing too much of a burden on your personal life, will not be productive for your business.
• Determine whether loans or investments from family and friends, is a good idea for your business-This is obviously a personal decision and choice, on both sides, of the matter. It is important to be realistic in assessing your ability to repay a loan. You should also consider how much participation, and decision-making authority, you want from family and friends, if they have an ownership interest in the business. However, for many potential small business owners, support from family and friends may provide more flexibility, especially when you are just starting up a business, and find it more difficult to obtain bank loans, or other outside financing.
• Make sure you can clearly identify the resources you need-This is where your business plan comes in. Your business plan, coupled with your budget, should tell you what resources you need. It is important to remember that if you are starting up a business, you will need to consider any organizational and start-up costs, capital expenditures, and working capital requirements. You will also need to make sure that you have sufficient liquid assets, to operate your business, until you can start generating a profit, and positive cash flow. Keep in mind that if you are already in business, and are planning for growth or an expansion, the resources you need will probably be similar. Financial experts advise that you should not necessarily over-estimate your resource requirements, but a degree of conservatism may be in order. This is in the sense of adding in a certain cushion, to ensure that your plans will not be affected by a lack of resources.
• If you don't know how to do something financial, find the person who does-In an attempt to save, save face, or just save time, many small business owners do not find the help they need. The bottom line is this-for any financial matter that you do not know how to deal with, you need to either hire someone, or pay someone to do it for you. Managing the financial aspects of your business is crucial to its long term success, and failing to have the right person, to handle financial matters for it, can doom it to fail.