4 ideas for controlling your finances

One of the most serious mistakes that small business owners often make is failing to control their finances.Financial planning is crucial for your small business because without a cash flow and a good plan on how that cash flow will be spent, your business can go under fast.By creating cash flow projections, you will be able to avoid problems and create the financial success you need.

In order to effectively control your finances, you will need to develop a plan.You will need to know how much cash is coming in and be able to budget where that money will go, whether in be into producing more inventory, wages, overhead, etc.There needs to be a plan developed so that you don't have too many surprise expenses and for those that do come up unexpected, you will have a plan for them as well.

Creating these plans does not have to be a difficult process.It is really just a matter of using a few basic principles together with your intuition and knowledge about your business.Here are four things you need to consider when creating a financial plan for your small business:

1.Look at past income and expenditures.Take the last six months of actual results to base future projections.Ask yourself the following questions:
- Have the revenues and expenses been coming in the way you expected them to?
- Are receivables and inventory at the levels you expected?
- Are you surprised by any of the numbers now that you are looking at the last six months of actual results in front of you?
The near future is very likely to be similar to the recent past, so use this information as a guide as to what to plan for. You will be amazed at how this principle will help you create reliable projections. It also helps make the process so much easier and faster for you.

2.What is changing in your business that might affect your bottom line.For example, if you just negotiated a 10% discount in the cost of a product that you re-sell to your customers, then you should consider whether it should be reflected in the month you will experience the reduced cost.Make sure that any changes you take into account are significant enough that you are certain of their impact.Otherwise, it would be better to wait and see the impact in your actual results before including it in your projections.

3. Be conservative with your numbers.No plan will be completely accurate.In fact, you can be 100% certain that the actual past results will vary somewhat from what you project, but you want to have as close of an estimate as possible.Although basing projections on past results can be a fairly good estimate, you will want to keep your estimates down when considering income and up when considering expenses.That way you have a nice little buffer zone in the middle in case of any significant variance.

4.Review your projections to make sure they look reasonable.After you get all your numbers together, you will want to sit down and look at them and then ask yourself the following questions:
- Are they in line with your general expectations?
- Do they make sense given your intuition and knowledge of your business?
Give the projected cash balances the "smell test." The smell test is a quick way to make sure everything smells right. It's a way to make sure nothing unusual or unexpected has made its way into your numbers.

Make a commitment to yourself now to maintain control of your finances by creating a plan and sticking to it.It may surprise you how easy it is to manage your money if you have already planned ahead of time how you were going to spend it.