“It takes money to make money” as the adage says, Finance is considered as the lifeblood of any business organization. Businesses run primarily on money, and business finance guides you to make shrewd and prudent decisions about cash inflows, cash outflows, and long-term funding strategies. Finance in an organization serves various purposes such as:
1. Meeting the operational as well as non-operational expenses
2. For asset creation and profit creation
3. For introducing new products into the markets
4. For better cash flow management
5. For reaching the objectives of a business concern
6. For extending the wings of business
7. For the management of unavoidable risks evolved in the process of business operations.
Here are the 5-financial tips that help your business entities for proper management of your cashflows and financial transactions.
1. Manage your credit
2. Invest appropriately for your risk tolerance
3. Understand your seasonal cash flow
4. Review your costs and manage your accounts properly
5. Build an emergency fund
1. Manage your credit: –
Credit plays an inevitable role in any kind of business organization, and you need to make sure that your credit is solid. The cost of capital for which you are acquiring credit for your business must be lower than the return on investment. And the debt-equity ratio must be in a proper manner so that the business doesn’t completely rely on equity capital which is a risk and a business doesn’t completely rely on debt capital as it may lead to many future obligations.
2. Invest appropriately for your risk tolerance: –
You need to make sure that you are investing your liquid in a diversified portfolio of assets that are appropriate for your time horizon and risk tolerance. For example, if your business is running in profits then you can invest your portfolio mostly in stocks. However, depending on your investment goals, you need to decide the percentage of your portfolio in stocks so that you can capture more of their potential long-term growth. Stocks can be risky, but in general, they offer the best potential for long-term return on investment.
3. Understand your seasonal cash flows: –
Another precautionary financial tip for business concerns is to understand the seasonal cash flows.
FOR EXAMPLE: – if your business has a seasonal demand in certain months and has a fluctuating demand for the other months. In such a case, you need to utilize that peak period perfectly so that if your business gets slowdown during the other months you can recover yourself from previously earned seasonal profits.
4. Review your costs and manage your accounts properly: –
You need to keep track of all of your business expenses. These can add up quickly, but reviewing the costs regularly allows you to fine-tune where your money goes and how much it is worth. And for managing the accounts you can hire a good bookkeeper or purchase any accounting software as it plays a crucial role in tracking your incomes and expenditure in a very accurate manner. By following the above 2 tips you can have a clear glimpse of financial projections of your business concern and it will also help to anticipate future financial obstacles and risks.
5. Build an emergency fund: –
A general thumb rule, according to financial planners, is to have three to six months worth of living expenses excluding taxes as an emergency savings fund. This emergency fund helps us to recover from uncertain and unexpected contingencies.
All the above 5 financial tips will help for the smooth functioning of your business by predicting and understanding the capital obstacles and financial risks.