Finance for entrepreneurs

Did you know that poor money management is the cause of 82% of business deaths? If you want your brand to endure over time, you must educate yourself on entrepreneur finance. Don’t worry! In this article, we explain the main concepts you need to know, as well as eight tips for good financial management.

Finance for Entrepreneurs: Fundamentals

Let’s start with the definition of finances. Business finance refers to the management and control of a business’s financial resources. This includes the planning, acquisition and distribution of funds to ensure that the business operates healthily, grows and achieves its long-term goals. Therefore, the survival of a business depends on its financial management.
Let’s see some of the most important concepts you need to know to understand finances.

Budget

This is the cornerstone of any business. The budget is a financial plan that details all expected revenues (sales, investments, financing, etc.) and all expected expenses (production, marketing, salaries, rent, taxes, etc.) of a company over a predetermined period of time, usually a year. It is an essential tool for decision making and financial management. This is a fundamental aspect of finance for entrepreneurs to know the state of income and expenses of your business. It is essential to keep the accounting records updated.

Ongoing costs

These are expenses that a brand must pay regardless of what happens. In general, they remain constant over a period of time and are not related to the level of production or sales of the company. Rent, employee salaries and insurance are some examples.

Cash Flow

This is the actual movement of money in and out of the business, which, like the budget, is calculated over a period of time. Brands and companies must keep a close eye on their money. This involves recording all cash inflows and outflows and projecting them for a subsequent cash flow. A positive flow indicates that more money is coming into the company than going out.

On the other hand, when it is negative, it indicates that revenue is not enough to cover expenses. Its importance lies in the fact that it is responsible for controlling the cash inflow and outflow of the company. In addition, it allows you to know the company’s liquidity and whether it needs external financing to satisfactorily comply with its fundamental operations.

If you do not monitor and keep your company’s accounting up to date, the financial plan you make will not make much sense. It is essential to record all income and expenses every day and submit a monthly report on the status and compliance with the objectives set out in the financial plan. Nowadays, there are many mobile apps available that allow you to easily and quickly record your company’s daily income and expenses. This way, you can monitor in real time the financial health of your business and help entrepreneurs with their finances.

Debt Management

Debt management involves managing all the loans or borrowings the company has obtained. At this point, it is crucial to keep track of all these debts, including interest rates and repayment terms. A strategy must be created to pay them on time and avoid accumulating more than the business can pay.

Investing and financing

Both sources of capital can help a business expand. Investments involve investing one’s own or investors money, while financing can include bank loans. Each business must carefully evaluate the financing and investment options available. This involves calculating the related costs (interest, profit sharing, etc.) and determining how the funds will be used to generate profitability.
Most of the time, the start of any business is usually slow, so it is important to stay financially active. For this reason, it is crucial that a percentage of the sales you make be used to invest in the business. It is important to prioritize investment options in an entrepreneur’s finances, so it is advisable to create an investment plan. This financial tool examines the elements that support the possible investments and makes a thorough evaluation of the methods of investment.

Profit

Refers to the profit a business makes after dividing all of its costs by its total revenues. It is an absolute measure, also known as profit margin, that indicates how much money the business made or lost during a given period of time. If total revenues were $500,000 and total expenses were $450,000, the profit would be $50,000.

Profitability

Profitability, unlike the previous concept, is a relative measure that indicates the efficiency with which a business uses its resources to generate profits. It is usually expressed as a percentage and compares profits to some financial indicator, such as invested capital, total assets, or sales. In other words, profit focuses on direct financial results and how much money a business made or lost in a given period of time, while profitability evaluates the relationship between profits and resources used, which provides insight into how well the business is using assets.

Capital reserve

Maintaining a capital reserve means having an emergency fund to take advantage of strategic opportunities or to cover unforeseen expenses. The idea here is that the company invests a portion of its profits in the creation of a capital reserve. This allows investing in growth when opportunities arise and provides financial security in difficult times.

Useful tips for managing your company’s finances

Successful financial management is undoubtedly one of the many challenges involved in running your business. Now that you are well versed in the basic terminology it is time to see how we can ensure your success to accomplish this task.

Let’s see some useful tips that you can follow in order to improve the performance of your business.

Build a solid budget

Create a detailed budget that includes all your income and expenses.We understand that it takes time and it is not the most enjoyable task, but only the first time and will yield amazing results. After that, you just need to update it. This will help you make smart decisions and have complete control of your finances. It will be easier to assess the financial health and profitability of your company by knowing and carefully recording these movements. This is a general review of how your company is progressing in the accounting area.

Build a business plan

Either with your work team or with an accountant, you should create a business plan that includes a financial plan of the company to know where you are going with your company financially. This project should establish short and medium-term objectives for the income and expenses you can obtain from your company.

The business plan should include a description of the project, objectives, products and marketing strategies, as well as a financial plan with clear objectives that will help you position yourself and grow. This plan should include the investments you will need to carry out the project, the sources of financing, the income and expenses, as well as the projected profits or losses in order to have optimal finances for entrepreneurs.

Saving money is crucial

Control your expenses, both personal and business. Those that are essential should be prioritized and those that are unnecessary or exaggerated should be eliminated.

Diversify your sources of income

Don’t rely on a single source of income. Instead, investigate alternative methods to generate income and, therefore, reduce financial risk. It is also a good idea to set aside a cash reserve to cover unexpected expenses or periods of low cash flow. This will help you avoid using last-minute loans, which are usually the most expensive and will help you in any emergency situation.

Consult with suppliers

To increase your cash flow, try to negotiate favorable terms with your suppliers, such as early payment discounts or extended credit arrangements. Also, it is advisable to use financial management tools to automate routine tasks such as invoicing and cost tracking can save time.

Get yourself a fixed salary

It is common to fall into the error of believing that all the income generated by sales belongs to us. However, most of that money should be used to cover expenses and debts, as well as to reinvest it in the business so that it can grow and achieve its objectives. Therefore, it is advisable that the finances of entrepreneurs take into account the possibility of establishing a fixed salary of your own. In this way, not only will you be able to make a more accurate projection of your business expenses, but you will also be able to make a more accurate projection of your personal budget.

Invest and take care of yourself

Your health can be seriously affected by financial stress. Since a healthy entrepreneur is better able to make informed business decisions. Take care of your health, both physical and emotional. Also, don’t forget to invest in you, improving your knowledge and skills to bring your business to its maximum potential.
The success of a business depends on your training and continuous education. Entrepreneurs do not need to be financial experts, but they do need to know the financial elements of their business and keep their accounts and operations organized. The key is to start learning basic finances.

You can take finance courses, read books on the subject, and join blogs related to the entrepreneurial community, for example. New entrepreneurs often worry a lot about their finances.
Entrepreneurs may not experience difficulty understanding or managing their finances. With education and consistent practice, anyone can acquire financial skills, even though they may seem overwhelming at first. Financial management is essential to the success of your business, whether you have a physical or online business, because it allows you to make informed decisions and keep it healthy.