Financial management

Three simple tips to help you master your small business finances in 2022

- December 27, 2021 3 MIN READ

Unlike large organisations, small businesses are rarely backed by a robust team of finance, HR, design, or marketing experts. Because of this, small business owners can often end up wearing many of these hats, and learning skills initially outside their comfort zone. This can be daunting—especially when it comes to the financial side of things, writes Richard Francis,  Founder and CEO of Spotlight Reporting.

Despite there now being a range of cloud accounting tools that ease the way for owners to take control of their finances, there are still quite a few stumbling blocks along the way.

As an accountant and advisor of over 20 years, and the founder and CEO of accounting software company Spotlight Reporting, I have a long history of working with businesses to achieve—and even surpass—their goals. If you’re not feeling confident about your finances and aren’t sure where to begin, try these tips.

3 tips to understand  your financials

Measure the financial metrics that matter

Business owners can get bogged down with numbers that, at the end of the day, don’t support the goals they’ve set themselves. Start by outlining the financial (or non-financial) goals you’re aiming to achieve. These goals could include growing the business, saving to send your child to university, or supporting your current lifestyle while only working four days a week.

Whatever you’re after, write it down. Then, focus on improving the numbers that will get you where you want to go. If you’re not sure what these numbers are, it’s time to consult an accountant or a trusted advisor—be sure to tell them where you’re headed, so they can help you chart an accurate map.

Focus on cash flow 

Cash flow is the number one issue affecting small to medium businesses right across Australia. According to The Invoice Market’s research, there’s $76 billion worth of outstanding invoices and two million businesses drowning in a sea of unpaid bills. Because of this, you shouldn’t rely on a  healthy profit margin as your be-all and end-all. You need to take into account the timing of money coming in, and money going out.

Cash flow is the lifeline of your business and needs to be a key area of focus. Without liquidity, your business might not survive.

Prepare for the future by  forecasting your finances

When you’re looking to make big financial decisions for your business, the best thing you can do to prepare yourself is creating a financial forecast.  Now you can use custom-built financial software to look into the future of your business, based on either a budget or actuals.

But I recommend taking things a step further by drafting out three different scenarios—what I like to call ‘the good, the bad, and the ugly’—to outline what could happen if everything does, or doesn’t go according to plan. It’s no use only planning for one contingency; you need to be prepared to weather all three.

Being on top of your finances may seem daunting at first, but it’s crucial for the survival of your business. Ensure you’re setting the right goals, keeping on top of cash flow, and preparing for any possible future scenarios.  When in doubt, engage the services of a trusted advisor who will be able to help you chart a way forward. In these troubling times especially, it’s an investment that might mean the difference between sinking, surviving, or thriving.

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