Entrepreneurship is now the main source of wealth creation, having surpassed wealth acquisition by inheritance, according to a global survey by Barclays. Global entrepreneurial activity is also increasing. A report on entrepreneurship by the OECD show increasing trends in small businesses in a number of OECD countries, including France, Belgium, the United Kingdom, the United States and the Netherlands; with global business opportunities being created through the use of online working tools and platforms. However, in a survey by ABN AMRO Commercial Finance, 48% of accountants believed that their SME clients had difficulties managing their finances. To succeed financially, entrepreneurs need to have effective financial management strategies.
Financial Planning and Performance
You have an excellent business idea and aim to provide a unique and innovative product or service to your clients for a good level of profits in return. You should have a strategic approach by planning your business activities and ensure they are managed to achieve success. Your business plans should include budgets and financial plans, which translate your activities into financial terms – income generation, business expenses, cash flows and profits expectations. Whether you are just starting to build your business, or have been in business for some years, you should always have robust and accurate financial plans for specific timescales.
Financial forecasting is a useful tool to manage your business performance and results. This involves analyzing past and current business activities and performance to ascertain the impact on future results. This helps to identify business and financial risks as well as opportunities. You should then make effective decisions to mitigate those risks, or take advantage of the opportunities, thereby increasing your chances of growth and success; this should also inform your future budgets.
Financing and Cash Flows
In addition to managing your business profitability, you need to pay attention to your business cash flows. You need cash resources to run business operations smoothly. However, small businesses tend to face significant financial constraints. You should plan and monitor your business accounts and cash levels to avoid interruptions to your business activities as a result of financing issues. You can adopt strategies to manage your business finance such as customer debt management and control, taking advantage of business credit and running your business efficiently to lower cost and make savings. Building effective relationships with your suppliers as well as banks and lenders is also useful for managing cash flow problems when they occur.
Your Personal Finance
Achieving financial success in your business without giving attention and thought to your personal finances defeats the purpose of all the hard work you’ve put into your business to build financial success. Your personal finance has an impact on your financial future, and therefore very important. You should get them organized and use effective personal finance strategies to build your financial goals and secure a good future for yourself. It is important to keep your business finances and personal finances separate – keeping these separate will help you give each of them the attention they deserve and build a better understanding of how you are performing in both areas. You should also avoid paying for your personal expenses from your business account.
However, the financial skills you have used to manage your business can be transferred into your personal finances. Cash flow is important in your personal finance, just as in your business, and should be well planned and managed – budgets are also useful here. As an entrepreneur, your main source of income is likely to be from your business. It is therefore important that you build a good savings and investment pot. This provides an emergency fund as well as helping you to generate other income through their returns, and will also help you to avoid using your business account in the event of shortfalls.
Building a financially successful business is a good motivation to continue and grow your business. Having a positive attitude to your finances will help you to manage them effectively. You should also seek help and information if needed to ensure your growth and success.