Business Management is challenging. Marketing, budgets, human resources, accounting, product testing… we often hear about these concepts individually. But what about combining them together in order to get a high-level overview of what it takes to run a business?
That’s the concept of this article.
Why must you know everything? Because most small business owners know how to do something before outsourcing it to another party. And when I say most, I mean all successful business owners. It’s kind of like how investing goes. Never invest in something you don’t understand. As a business owner, whenever you put money into the business, you’re investing. In many ways it’s just the same as investing in the stock market.
It’s also useful because as many CEO’s must do, they must follow what Elon Musk and SpaceX call the ‘critical path’. It means spending time on what matters most to the company at any specific moment in order to propel the business forward at the fastest possible rate.
This means one day you may be working with human resources in order to find a replacement ‘xyz’ as quickly as possible. Another day this may mean working with advertising to get the new commercial ready before the Super Bowl.
Whatever the occasion, a good business owner and/or CEO must know what to do when they are needed the most.
One must know some basic concepts about small business finances before starting any company so that the company can grow successfully…
In the case of small businesses, it is better if the owner has some knowledge of keeping accurate financial records. Lack of proper accounting knowledge can increase the chance of business failure immensely.
Being an accounting genius isn’t necessary, despite what you may have heard. But it is important to understand cash flow because without it — the business is either a hobby or a nonprofit.
If you want to be a business, you must make money. Simple. As. That.
Beyond accounting is projections. Financial management is an art as well as a science. It is hard to plan the expansion and other expenses without properly monitoring the cash flow. Cash flow generally involves two projections, i.e., total revenue and total expenses.
Even if you’re not a public company, projections are often important. In the case of some companies though, Warren Buffett’s Berkshire Hathaway for instance, they do not make projections. But most companies do so it’s wise to at least know why or why not to do them.
They play a crucial role in the success of any business, whether it may be small or big. Track all the ads and target the correct viewing groups. Make sure that the amount you spent on advertising is getting utilized in more ways.
As with projections, you can skip marketing altogether. As some say, if you build a great product, the product will market itself.
But in today’s age of social media, it’s important to at least have some sort of marketing team. Even Tesla, which famously doesn’t advertise (many big companies don’t actually) has some sort of marketing department.
Maintain a good relationship with banks and lenders. By doing this you will be able to get loans and bank overdrafts when you need them. Getting a loan is not a single time process and make sure to submit foolproof proposals so that the lenders/banks get equally impressed with you.
You may be a debt-free business. But it’s familiar to understand the process in case you ever want to expand. Or want to share in the joy of using someone else’s money to grow your dream. They are both smart decisions, depending on the circumstances.
Different Types of Credit
Several banks support start-up business and by maintaining good relations with bankers, you can get some idea about different credit policies. This will surely help in increasing the overall potential of your business.
Money is everywhere. Understand what it looks like.
Savings and Investments
Utilize the savings and available investments efficiently. Having knowledge of stocks, bonds, and other money markets are extremely helpful in taking the business to new heights.
This is especially true during a period of growth so rapid you have more money than you’re able to invest in the business. You must divert that money elsewhere — at least for the time-being.
Timing plays a key role in small business financial management. The owner must know when to invest and where to invest to get maximum profits. Hiring a skilled and efficient money manager is worth considering if you want to expand your business really fast.
Time is money. Make no mistake.
Timing also means making sure you hire at the right time, fire at the right time, invest in certain areas at the right time, basically do everything at the best time possible in order to maximize your returns.
Most small business owners find it difficult to mobilize resources. This problem of inability to mobilize funds is commonly seen in more than 50% of small companies. Before the start of the company itself, plan at least 3-5 years activities and make sure that you won’t face any financial problems all these years.
Keep things fluid. Consider how Berkshire Hathaway runs things by having lots of cash on hand for the next big opportunity.
Keeping the payroll secure and streamlined is very important. Check writing, automatic bank deposits are some of the most preferred methods and maintaining the same can become hard once the company starts developing. Planning well in advance will surely save unnecessary headaches.
Having any sort of complications with payroll means you may lose trust in your partners, employees, and freelancers. Always make sure they get fed.
Complete Financial Plan
Tell your accountant(s) all your requirements and design a plan where the inflow is very smooth. Note that a small mistake in studying the inflow can hamper the overall business prospectus. Think about the future and be ahead of others. Be holistic in your thinking.
Understand everything at least to some degree. That way, you’ll always be able to intelligently engage a challenge.