Profit is what defines business success. But to be more successful, profit needs to be reinvested in your company’s development. This is especially important when it comes to small businesses, including online businesses, since it’s often harder for them to overcome market challenges imposed by big corporations.
There are many ways how cyberpreneurs can control business finances in order to save more money and grow their business with it. Here are some tips:
Pay attention to financial statements
For controlling your finances, you need to use different kinds of financial statements. These help you articulate your profits and losses, and make them more transparent. Transparency will enable you to create detailed financial plans and forecasts. For a start, make sure to prepare these important financial statements:
- P&L Statement. It summarizes your revenues and expenses in order to create clear picture on company’s profits and losses.
- Cash Flow Statement. It provides you information on cash amount and sources, as well as how you spent money for a certain period of time.
- Balance Sheet. It analyzes your company’s assets and liabilities, and tracks changes in a segment that happened in a certain period. Although it’s similar to your company’s market value, it shouldn’t be confused with it because a balance sheet doesn’t report on profits and losses.
Track your profits
Making profit is the main purpose of every business. That’s why profits need to be closely monitored and analyzed. Here are some of the tips to make the process much easier:
- Many entrepreneurs try to figure out profits out of cash flow statements. This is a wrong approach. You should only use the P&L statement for profits monitoring.
- Always use a compact profit model when you are conducting analysis and making decisions. These compact profit models are much easier to understand and follow than complex P&L statements.
- Analyze even the smallest changes in profit factors, since even the smallest differences in margins, production process or product demand can have drastic effects on the company’s profits.
- Use smart debt collection practices. Ampac, a Sydney-based debt collection agency, cautions that profits that haven’t been collected and reinvested into your company’s development are the same as loses. That’s why entrepreneurs are advised to seek help whenever needed.
Use company assets in the best way
Company assets are very important, and their management defines your company’s profitability. Here are some tips that will enable you to maximize the use of your company assets:
- Assets also determine the amount of capital company needs, which is why you need to downsize assets to the point that you can run your business in an effective and profitable way.
- Don’t rush for capital, especially if you gain it through bank loans.
- Impose effective asset controls to determine whether company assets are being used frugally.
Plan your financial future
Always take time for planning your company’s financial budget. You should do this together with an accountant, and this planning should include checking the financial statements listed earlier. You should also:
- Keep your P&L statement up to date. In case unpredictable events happen, it’s OK to revise the budgeted P&L statement.
- Check your budgeted balance sheet at the end of each year.
- Use the Cash Flow statement for planning big expenditures.
Smart budgeting and planning are essential for running a business, especially for startups. If you’re not always ahead of your business finances, you might find yourself paying expensive professional services and financial experts to avoid bankruptcy. You can start financial planning by yourself by regularly updating your business achievements in the form of financial statements and use them for future expansion. Knowing where every cent of your company’s money goes is the only way to run a lucrative business in today’s competitive market.