As a new year has begun, business owners should dedicate the next few weeks to the planning of budgets and cash-flow, both of which are crucial tools required for the survival of any business.
This is according to Gerrie van Biljon, executive director at South African risk finance firm Business Partners, who says without a realistic and well-managed budget a startup is like “a boat without sails”, lacking direction and heading nowhere.
“The control of cash flow, adherence to payment deadlines and the management of creditors and debtors are all fundamental aspects that will determine the success of a business,” says Van Biljon.
Here are four tips from Van Biljon to help entrepreneurs and business owners stay on top of their finances in 2016.
Keep it accurate
Entrepreneurs are often eternal optimists, even when it comes to budgeting, but overestimated income can be as harmful as having no budget at all. It also provides a false sense of security. According to van Biljon, one of the best ways for business owners to project realistic income is to base figures on historical sales data, while ensuring deviations from such data are based on realistic factors.
Refer back to historical financial statements
Don’t just conduct an annual financial review, but also refer back to historical financial statements on a regular basis. Van Biljon said this will help predict sales dips and rising expenses before it is too late. Regularly updating a budget and a statement of cash flow enables business owners to keep an eye on where money is spent, allowing them to cut back where applicable.
Simple is better
Budgeting need not be a complicated exercise for business owners, and a simple spreadsheet is more than enough to manage an annual budget. Van Biljon says employing an accountant to draw up the financial statements is an advantage for some entrepreneurs, but they should take care to ensure that they know exactly what the accountant is doing at all times and that they understand the statements.
Putting together sensible budgets helps entrepreneurs plan for challenging financial times, and provides guidance for when there is extra cash available. They should also include plans on how to cope when the business suffers an unexpected knock in sales or income.