Financial management is a critical part of running a successful business. Staying aware of your financial situation lets you make informed decisions that grow your company. You can take out loans, change prices, and make hiring decisions with confidence as a result. As a small business owner, you can make a financial plan with the right knowledge. This guide will teach you how to create a basic strategy for your finances.
Make a Business Plan
Before you get into the details of your financial plan, it helps to have an overall business strategy. This plan will include information about your small company that puts your goals into focus. Generate a document with the details you need to put together a path to success — it can have as many or as few categories as you want. You can cover topics such as:
- Products and services: What products and services will you offer? How will you solve your customers’ problems?
- Competition: What makes other businesses in your industry successful? How can you use that information to your advantage? Make sure to walk around your neighborhood and assess your local competition.
- Customers: Who will get the most out of your products or services? What is your target market?
- Marketing: How will you promote your business? What marketing resources will you need?
- Earnings and expenses: How will you earn money? Where will you spend it?
When you make a business plan for your own business planning, you can include anything you find important. Remember that if you need a business plan to apply for a loan, the company might have certain requirements. The U.S. Small Business Administration has more ideas for creating a business plan and explains the two main plan types.
Set Your Budget
Now that you have a business strategy, you can make a budget. This document lets you set the amounts of money you plan to spend by category. It helps you manage your spending and adjust your financial habits to make a higher profit. The categories you choose can include:
- Rent and utilities
- Employee pay
Your categories will depend on your business’ needs and expenses. You can use software and internet tools to handle your budget or opt for pen and paper. Use whatever method makes sense to you.
Create a Financial Analysis
With a business plan and budget, you know how you want your financial future to look. A financial analysis examines your finances in the present. It lets you know about your small business’ performance and potential for growth. Your analysis will have three parts — the income statement, the balance sheet and the cash flow statement.
Your income statement subtracts your expenses from your earnings to find your net profit. Some people call it a profit and loss statement, a statement of earnings or a statement of operations. At the top, you write your business’ earnings during the period you choose. Then, you list the expenses you had throughout that period. After you subtract all your spending from your revenue, you get your overall profits, also known as the net profit.
A balance sheet shows your assets, liabilities and equity. It adds up things that have monetary value (assets) and subtracts money you owe to others (liabilities) to find your overall worth (equity). You subtract liabilities from assets to see how much you would have if you sold your business and paid your debts. Once you gather this information, you can see how your value changes.
The cash flow statement has similar information to the income statement, but it tracks how you spend your money. We call it a cash flow statement because it shows how cash moves through your business. It includes cash from operations (day-to-day activities), cash from investing (property and equipment) and cash from financing (borrowed money). You include the money you earn and spend in each category. Once you have these numbers, you can compare them to other parts of your financial analysis to see how you can manage short-term expenses.
What to Keep in Mind When Managing Your Finances
As you take care of your finances, remember the following aspects of financial management:
- Professional help: If you have the money to spare, you can get advice from an accountant or lawyer. They understand all the terms we talked about in this guide and will help you create your records.
- Taxes: Factor your tax payments into every part of your financial plan. Business owners also have to follow specific rules, or the IRS will charge extra fees. These laws change over time, so check on them every now and then.
- Investments: Keep an eye on any investments you make, including retirement plans and stocks. You can see where they earn you the most money so that you know where to invest more.
- Raising Money: There are many resources for you to raise the money you need to grow your business. Banks are one source, but there are many other Small Business Loan Providers.
Using a POS for Financial Planning
Point-of-sale (POS) systems keep track of your finances for you. They track the sales you make at checkout and calculate your total profits. The POS+ system from National Retail Solutions, Inc. has features meant to help small businesses like yours. It makes financial planning easier by:
- Including everything in one package: When you buy POS+, you get the hardware, software and training you need to use it.
- Tracking your inventory: POS+ counts the items you ask it to track as they sell. Knowing what your item sales look like helps you plan which products to fill your shelves with.
- Recording vendor payments: You can add your vendors and vendor payments to POS+, and it will subtract them from your sales profits. It also prints a receipt for your records.
- Processing card payments: Our optional payment processing service lets you take credit card and phone payments at a low price, which lowers the amount of cash you need to count for the day.
POS+ has an affordable price and easy-to-use technology that help small businesses grow. We offer a full range of services that can support your company. Learn more about our POS system by requesting an online quote or visiting the POS+ product page.