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Published On: Tue, Mar 26th, 2019

Financial Analysis: How To Work Out Your Finances In Business

It’s impossible to run a business without knowing how to manage its finances. A big part of overseeing and controlling a business’ finances is conducting different types of financial analyses, which is something you would know as a business owner.

photo/Steve Buissinne via pixabay

However, you should also know that conducting financial analyses is just one aspect of running a successful company. You can always consult a financial planner for this, such as Capstone. Still, it’s beneficial for you as the business owner to be able to know how to work out your business finances by taking these steps:

  1. Know the legal requirements

Before you execute any part of your business plan, you should first know the legal requirements of starting a business. Since these would vary depending on where you’re based and what industry you’d want to work in, you should consult a local solicitor or business adviser.

In general, you’d have to secure the following legal requirements:

  • Federal, state, and local taxes
  • Permits
  • Licenses
  • Contracts (i.e., lease agreements)

Additionally, make sure to read the regulations, codes, and laws concerning the following areas:

  • Advertisement
  • Information management
  • Employment
  • Safety, health, and environment
  • Risk mitigation
  1. Compute for needed capital

The next step is to determine how much money you’ll need to finance your business, which is also known as capital. In computing for your business capital, consider two types of costs:

  • Start-up or one-time costs

These include everything that you only have to pay for once, such as the expenses of legal compliance.

  • Operating costs

As the name suggests, these expenses cover everything you need to keep your business running, such as rent and salaries.

Although computing for your business capital is something that you could do yourself, it’s best to hire a financial adviser who will help ensure that the computations are accurate. This also ensures that you’ll have enough funds that will safeguard your business should any emergencies come up.

  1. Practice complete and precise bookkeeping

Simply put, bookkeeping is the act of recording all the financial transactions in your business, including:

  • Sales
  • Expenses
  • Receipts
  • Revenue

Hiring a reliable accountant to handle the bookkeeping of your business will help you keep an accurate record of important information that you’ll need for financial analyses.

  1. Keep an eye on your expenses

As a business owner, you would regularly spend on the following, among others:

  • Manpower
  • Production equipment
  • Supplies
  • Workspace

By regularly reviewing such expenses, you can make sure that you’re getting the most value out of your money. For instance, if you realize that a certain supplier could be a better alternative to the one you currently have, then switching suppliers may be a smart move for you.

  1. Pay loans as soon as possible

One of the most common reasons why businesses go bankrupt is debt. Avoid digging your business’ grave by paying off any loans as soon as you can. In the first place, you should remember to only apply for loans when absolutely necessary.

Additionally, make sure that you won’t be putting yourself in even worse trouble just to get rid of a loan by always going through the right channels when acquiring money.

Financial analysis, for instance, could help determine your next move to increase your sales by studying different rates of return.

  1. Spend money only when you need to

Be frugal with your business’ money through living by the following principles:

  • Be sensible with your salary

Frugality should also apply to how much money you allot for yourself as the owner of the business. While there’s no harm in rewarding yourself the first time your business collects an impressive income, be sure to keep feeding money into the right business areas.

  • Rent what you can

If you could rent equipment instead of purchase brand-new models, then go ahead and do so. Just don’t forget to take the necessary precautions to ensure that this move won’t compromise the quality of your product or service.

  • Skimp on the little things

You could also practice frugality when it comes to logistical expenses like travel and other miscellaneous fees.

The overriding principle is that you should cut back on the seemingly small and inconspicuous expenses because they could all add up quicker than you’d expect.

Conclusion

Working out the financial aspect of your business through conducting financial analyses could initially seem like a daunting task, especially if you have little experience in that area. However, if you remember to keep an accurate record of transactions, pay off debts quickly, and be frugal with your business funds, then you’re already starting on the right path.

Author: Sarah Morris

On the DISPATCH: Headlines  Local  Opinion

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