Poor financial management skills are one of the biggest reasons why businesses fail. However, the fear of failure is not the only reason for maintaining good financial records.
Well-maintained financial records help provide an accurate picture of how well your business is performing, says Cohen Chakwizira from QuickBooks. They can also help business owners make more informed decisions.
Chakwizira shared this at the recently held Finance Indaba in Sandton, Johannesburg.
To gain key insights, some of the documents business owners should be generating are a statement of income, balance sheet, profit and loss statement, and cash flow statement.
Here is important information you should be getting from your finances:
1. Estimating capital requirements
Determining the amount of capital you need to start a business or if you have enough cash reserves to fund the operating cycle.
2. Determining capital structure
Capital structure determines how operations and financing of assets within a company are funded, either through debt and/or equity.
3. Estimating cash flow
See if you have enough cash on hand to meet obligations like payroll, rent, and other expenses.
4. Investment decisions
There are various ways that business owners can invest, from acquiring a new business and capital investments to real estate. Your finances will let you know whether you are in a position to make investments.
5. Allocation of surplus
Help you decide whether to reinvest, spend, or expand with the excess cash available.
6. Deciding on additional finance
Get help deciding whether you should opt for an overdraft, factoring where you “sell” your entire debtors book to a bank, or invoice discounting.
7. Negotiating for additional finance
Traditional finance institutions will assess the risk of lending you money. Solid financial management will stand you in good stead and give you room to negotiate.
8. Checking the financial performance
Well-maintained financial records can provide vital information about the state of your business, whether you are ready to expand or if tough times are ahead.
