Early on in their entrepreneurial lives, small- and medium-sized enterprise (SME) and startup owners will need to learn the basic principles of treasury management. This involves managing their organization’s financial resources to optimize cash flow while also effectively mitigating the company’s risk. Sound financial management practices play a huge part in ensuring that the business remains financially stable, and any business owner who wants to have sufficient cash to cover their day-to-day expenses should strive to be a master of their treasury.
As a new entrepreneur, how do you get better at financial management when your business is still growing and when your funds are still quite lean? How can you make your business more attractive to investors and weather through issues like fluctuations in your cash flow and sudden exposure to new financial risks?
To avoid mishandling your business’s finances without even realizing it—and to achieve financial stability even while your business is in its early growth stages—here are some practical financial management tips you can implement:
1) Develop a Sound Method for Cash Flow Forecasting
A cash flow forecast provides a clear projection of expected cash inflows and outflows over a specific period. Being able to accomplish one will allow you to anticipate your growing business’s financial needs (e.g., working capital, operational expenses, and investment requirements), ensuring that you have the necessary liquidity to support your ongoing operations and growth initiatives. An accurate forecast will also help you to make better financial decisions since you’ll have a clearer picture of your business’s future cash flow.
New entrepreneurs should make it a standard practice to regularly update their cash flow forecasts based on the business’s actual performance. An entrepreneur should also work closely with their finance and accounting team to refine their cash flow assumptions and ensure proper alignment with the business’s strategic objectives, all towards being able to sustain the company’s financial stability.
2) Take Advantage of Available Online Banking Solutions
Modern online business banking solutions now provide business owners with more reliable and hassle-free ways to efficiently monitor and control their cash flow. An entrepreneur can expect a good business banking online solution to streamline the movement of their funds and to help them achieve real-time visibility into their financial accounts, transactions, and balances. In that sense, the solution can serve as one of the best upgrades for skillful treasury management.
If you own a small business, you can use a Business Deposit Online App to simplify your money management processes. It is perfect for small business banking online, as it lets you transfer funds to any bank, pay all your suppliers in one go, and disburse salaries and benefits to your employees using a single account. You can also earn an interest rate of up to 2.5% per annum. Moreover, you can assign a maker, checker, and approver for transactions so that you can establish a robust system of checks and balances for your business and keep your transactions secure from fraud.
3) Implement Proper Risk Mitigation Strategies
As your small business expands, you may encounter an increasingly complex financial landscape that comes with various risks. Market fluctuations, economic downturns, and supply chain disruptions are all examples of risks that can significantly impact your business’s cash flow. Even a new entrepreneur shouldn’t be complacent about risk mitigation and should have the right strategies in place for maintaining financial stability during periods of extremes.
Risk mitigation strategies like hedging, diversifying your investments, and brokering strategic partnerships with other companies will all help you protect your business’s finances, both during times of feast and times of famine. Either way, a more proactive approach to risk management will enhance your company’s financial resilience. You’ll also be able to instill more confidence among your investors and stakeholders, which is crucial for attracting future investments and business opportunities.
4) Maintain an Emergency Fund
Another prudent thing to do to strengthen your company’s financial management is to keep an emergency fund. This acts as a financial cushion and a safety net during unforeseen challenges, which will give you greater flexibility to pursue growth despite unpredictable circumstances.
To build and maintain an effective emergency fund, it helps to establish clear criteria for when these funds can be accessed. It’s also a good idea to regularly review your criteria so that you can adjust the fund size based on your business’s growth and risk factors. Also resist the temptation to dip into the fund for non-essential purposes to ensure that you’re staying on track with your long-term financial management goals.
5) Explore Various Financing Options
Lastly, make it a point to explore various financing options beyond the ones you already know about to secure the capital you need for expansion, operational needs, and strategic initiatives. Term loans, lines of credit, and equity financing will all allow you to tailor your financing strategy to align with specific growth objectives.
You should also learn about the cost implications of different financing options so that you can further optimize the cost of capital for your business. Compare interest rates, fees, and repayment terms to come up with the most cost-effective financing solution that will minimize the financial burden on your business.
Diversifying your sources of financing also helps you mitigate liquidity risks. If you rely solely on one financing option, you might expose your business to vulnerabilities if that source becomes unavailable or too expensive to tap. Having more options means a better chance of you keeping your business’s cash flow going in the event that one source is disrupted.
Now that you’re earnestly running your own business, you should be ready to face numerous obstacles that may cause your finances to fluctuate. These tips should help you maintain your business’s financial stability throughout the different stages of expansion and make you more competent at the key entrepreneurial skill of financial management.
