Understanding the Finance Function of Your Business

Understanding the Finance Function of Your Business

Finance is the lifeblood of any business. It is the basis of every company’s foundation, development and, hopefully, success. Without considered financial management your business will likely struggle to procure the funds it needs to grow, let alone utilise those funds effectively.

Of course, there’s more to a business than financial considerations. Ideas and passion are important ingredients, but financial planning quickly becomes a critical factor as you attempt to transform good ideas into a promising, profit-making business model.

Financial management essentially relates to the management of funds within a business. As such it usually involves the establishment of best practices and strategies that are designed to maintain productivity, minimise costs, assess financial risk and ultimately ensure the smooth running of the company. The financial management of a business will affect every facet of its functioning.

Tips for successful finance management

If you want your business to succeed you need to get serious about finances. Whether this involves hiring a finance manager or seeking advice on financial planning, it’s important to ensure you’re addressing the following key business objectives:

1. Define your business plan
A business plan should be one of the very first tasks of a new business. It should succeed in defining the nature of the business, it’s strategies, objectives, identify market opportunities and make financial forecasts. There’s plenty of advice out there to help you put together a strong business plan that will be instrumental in defining your objectives and attracting external funding.

2. Monitor your business finances
A robust business plan is a great start but it’s no good if you don’t stick to it. A big part of financial management is monitoring financial performance and reviewing your position in relation to targets. This should be a stringently managed daily process.

3. Manage cashflow
Managing cashflow effectively is vital if your business is to run smoothly. To some extent cashflow management is all about timing and can involve simple but important procedures like efficient invoicing, as well as more complex methods for speeding up income and slowing down expenditure.

4. Stay on top of day-to-day costs
One of the fundamental objectives of any business is to ensure funds are present to cover basic day-to-day running costs like rent and wages. Keeping on top of these costs and ensuring your business has enough cash to function is obviously a critical part of cashflow management.

5. Keep accounting records
Keeping up to date, well managed accounting records is vital. Without good, coherent accounting records you’ll lack the insight you need to stay on top of business objectives and run the risk of losing track of expenses, debts and creditors.

6. Meet tax obligations
Staying on top of your taxes is a fundamental part of running a successful business. Again, this comes down to effective record keeping that will ensure you pay the correct amount of tax at the right time. Missed tax deadlines lead to fines and unnecessary costs that can easily be avoided.

7. Secure funding
Financing your business isn’t always straightforward – there are plenty of different routes to go down, so it’s important to assess your options a choose an approach that’s suitable for your business. You’ll need to work out how much funding your business needs and consider the pros and cons of options like bank finance and equity finance.

Whether you’re a freelancer working from a dedicated desk or a CEO operating out of a serviced office, it’s crucial that the finance function of your business runs smoothly. Hopefully the above points will be able to point you and your company in the direction of achieving clearer, more efficient finances.