By Emily Pope, Fundera
It would be cool if lenders, vendors, and other folks collecting money from you accepted Monopoly money. But unfortunately, they don’t. This is real life, which is exactly why you must manage your business finances well, especially if you don’t want to run into cash flow problems down the line.
Do you want to learn how to properly handle your company’s money? Here are six skills you absolutely need to master.
From delegating tasks and solving customer issues to promoting your products and services, communication drives your business. You also need effective communication to properly manage your company’s finances.
As Caroline Andersson of BlueVine says, good communication “can help you succeed in securing financing for your business.” Good communication helps you listen to and interpret financial information, especially when meeting with your accountant. This helps you strategize accordingly and communicate the budget to your team effectively.
Before meeting with your accountant, make sure you come prepared with a list of questions, avoid spending too much time on pleasantries (time is money!), and fully understand each concept. Don’t agree to something unless you are sure you know the ramifications.
If you’re going to run a business, you have to understand how budgeting works. Don’t allow uncertainty or a lack of knowledge to lead to bad planning.
By definition, a budget is “an estimate of costs, revenues, and resources over a specified period, reflecting a reading of future financial conditions and goals.” For a small or midsize business, there are three budgeting methods worth considering.
- Zero-based budgeting: Essentially, income minus expenses should equal zero for the accounting period. This doesn’t mean you have no profits — just that those profits have been allocated for a specific purpose (owner’s draws, reinvestment, etc).
- Incremental budgeting: Using the previous period’s budget, this method involves making increases based on inflation and new business expenses (like new hires, expansion, etc).
- Top-down budgeting: This works well if you’re very involved in day-to-day activities. You analyze estimated income and expenses, then make a budget. That budget is communicated to managers, departments, and employees.
Quick question: If you buy a car for personal use, are you going to just pay the sticker price?
No way. You’re going to haggle until you get a price you’re satisfied with.
Now, it’s not exactly good business practice to haggle like you would at the car dealership. But you should learn the art of negotiation.
As Grant Sabatier, self-made millionaire entrepreneur and founder of Millennial Money, notes, “negotiation is at the heart of selling, making, and saving more money,” which means any business owner can benefit from being a better negotiator.
You should study how to use and perceive negotiation tactics like price anchoring, the comparison effect, and the scarcity principle, while still being reasonable with your clients, vendors, and anyone else you do business with.
Check out these books to spruce up your negotiation skills.
Even if you dream of being the next legendary entrepreneur, don’t let emotions rule over reason. Making disciplined, research-based decisions concerning your company’s finances will put you in a better position to be the next Bill Gates.
In other words, you need to be objective and rational about something that probably makes you emotional, like your business.
The Foundation for Critical Thinking states that critical thinking is a “mode of thinking — about any subject, content, or problem — in which the thinker improves the quality of his or her thinking by skillfully analyzing, assessing, and reconstructing it.”
When it comes to managing your company’s finances, critical thinking skills can enable you to raise vital questions, identify key problems, gather and assess data, and communicate all the essential information with your team.
Here are nine tips to improve your critical thinking in everyday life.
5. Technological Expertise
Technically, you don’t have to be a tech expert. You just have to know how to use the tools at your disposal.
For instance, adopting and learning how to use the best accounting tools can enable better financial reporting, bank account syncing, payroll and expense processing, and more. And forecasting software employs big data and predictive analytics to allow you to better plan for the future.
Take advantage of financial tools like Freshbooks, Wave, or Quickbooks to improve and simplify your company’s finances.
Know the story of Icarus in Greek mythology? Icarus plunged to his death in the sea because he flew too close to the sun.
You certainly don’t want that to happen with your company. Exercise patience — glory doesn’t come overnight. Patience ensures you won’t make rash decisions, like taking on debt to fund a bad growth strategy.
There is debate as to whether patience is a skill, but author and entrepreneur, Seth Godin, believes you can learn to be more patient. Exercise patience with your finances, stick to a well-thought-out plan, and avoid risking it all (learn from Icarus).
Stay financially healthy and achieve long-term success
You’re not going to get anywhere without proper management of your company’s finances. These six skills can help get your business in good financial shape. Being disciplined and using money-saving tips, like outsourcing work and utilizing open source software, puts you in an even better position.
Sound financial management ensures you can focus on the important parts of your business: your customers and the products or services you offer.