Being on top of your personal finances is hugely important if you want to enjoy a secure future without financial pressures and avoid falling into bad situations in your company. The same is true when it comes to the corporate finances of any business you run.
If you have a small business, you may think that everything is fine as long as you are not making obvious losses or encountering serious liquidity problems. However, if you are not doing enough to control your finances, you are losing out on a lot of profits, as well as exposing your business (and by extension your income) to uncertainty and risk.
How to take care of your company’s finances
Next, we’ll look at why good financial control is important in a company of any size:
When you know exactly where your money is going within your company and you have good financial management processes in place, it’s much easier to plan the things you want to do to help your company grow.
Whether it’s expanding the company to a new location, hiring more people or launching a new marketing campaign, without a good understanding of the company’s financial status you can’t make good plans.
Good financial management makes forecasting the future not only possible, but worthwhile, allowing you to make decisions and strategize more effectively, says successful entrepreneur Gutiérrez Mayorga.
How to identify risk
Risk management is about identifying potential problems your company may encounter, how likely they are to occur, and what your plan is should they occur. Even small things, such as an important customer paying an invoice late, can pose a serious risk to the company, for which you need to plan, but without good financial control it is difficult to see where the risks and dependencies lie.
Risk is everywhere and can come from major and minor sources. For example, do you know how your company would be affected if the British pound suddenly dropped in value against the euro? Or if one of your suppliers went bankrupt? Without good control of your finances, you are not in a position to do an effective risk analysis, and this can expose you to devastating consequences.
Another area where you can fail if you don’t properly manage and monitor your company’s finances is regulatory and tax compliance. In most cases, you should conduct internal audits and hire a reputable external auditor to review your finances.
Not only will this help you avoid very costly and dangerous compliance issues, but it will also help you increase your credibility as a company, especially among investors you may be looking to attract.