Once you understand what the company’s finances are, it’s time to know what the best practices are for effectively putting the house in order.
If you are in the red, look at the relationship that follows an opportunity to breathe again and leave the financial ICU in which you have gotten.
If the balance is blue, that does not mean you’re doing everything perfectly.
Believe me, you can always wipe your expenses and make a profit. With the help of Vat Number UK; a UK based business registation company, we have gathered the following useful tips:
1. Financial education
The first step in making financial control of a company is to invest in financial education .
This does not necessarily mean investing a lot of money in courses.
Right here on the blog , I always bring unpublished content with several tips to uncomplicate the company’s financial as a whole.
So, use this information as a source of knowledge.
Want a good suggestion?
Start by researching the subject on the internet and buying books.
There are several titles that every entrepreneur should read .
Financial advisor Gustavo Cerbasi has published several books , both for company management and for personal finance.
In 2016, he launched a course called Financial Intelligence , which lasted three months.
The classes take a step-by-step approach to achieving financial freedom and have several useful worksheets.
In turn, the Brazilian Support Service for Micro and Small Businesses (Sebrae) offers several online courses , including free, aimed at various areas.
Here are some course options for business finance:
- Financial analysis and planning
- Cash flow
- Accounting for businessmen
- Financial management
- Control of expenses in trade
- I know I have control of my money.
All of the above courses are free, and the only investment is your time.
Investing in education is never too much, especially considering the growth of your business.
A very important and essential tip for the success of the company is the determination of a fixed value of pro-labore.
But what is pro-labore ?
It is one of the forms of remuneration of the administrator, so that you have your monthly salary and do not mix your accounts with those of the company.
That amount should be included in the budget, which I will refer to below.
Under no circumstances can the company accounts be mixed with those of the partners.
Otherwise, the reports will not present the reality of it, but the company and the owner.
Difficulty in decision-making and evaluation of results.
Also do your personal planning to know what the established value for the pro-labore should be.
3. Statement of income
The Income Statement of the Year (DRE) is generated monthly by your accountant.
In this report, as the name implies, the company’s revenues, costs and expenses are shown.
The amounts of revenues and expenses are reported in the month that occurred, regardless of the day the payment was made.
For example, if you buy $ 800.00 of office supplies and install it three times, it will be $ 800.00 in the DRE.
With this report, you can track revenue and expenses month by month and see which have suffered the most variation.
This allows you to perform a more detailed analysis and check what costs have increased and should be cut .
4. Understand the concepts
It is no shame for anyone to admit that he has not yet mastered all the day-to-day concepts of the company, however relevant they may be.
An entrepreneur is always learning because the need to evolve is permanent.
So I will now speak of the application of three very important concepts.
With this instrument, it is possible to understand the performance of the business in relation to sales, product costs and profit obtained with each item sold or service rendered.
With it, you can check:
- Profit from sales
- Products and services with higher and lower output
- The spot and forward sales volume
- The performance of the business in relation to sales.
This control gathers the sales information in one place.
Allowing them to be analyzed by the entrepreneur every month.
Deciding with more foundation on which products is worth focusing on and which services to invest.
They should include:
- Product or service sold
- Method of payment (spot or forward)
The sales control can be performed in a spreadsheet, and preferably in a business management system and integrated into the relationship with customers.
The cash book is a control in which all daily entries and exits are recorded.
Showing the source and destination of money.
This also applies to transactions in the cash and legal bank accounts .
That report shall include:
- Description of operation
- Starting balance of the day
- Final balance of the day.
Before I talk about the next check, I want to give you an extra tip.
The .MOBI account is a tool that can help you control your day to day finances.
Just use your smartphone, tablet or computer with an internet connection.
Your personal expenses should never be mixed with the business.
But if this is still going on, the report generated by the digital account will help you know exactly how much you used the money for purposes other than what you envisaged.
Detail your control as much as possible so that you can check the financial performance of your business to make the right decisions.
Chances are you’ve heard of cash flow , have not you?
This is one of the main tools of financial control, since it is essentially a map of movements that involve money.
The cash flow will help to have a forecast and make the control of accounts payable and receivable during the month.
So you can understand how the business behaves on a monthly basis.
In it, you will inform everything that has already occurred and the forecast of the following months.
For example, if you want to buy a new machine in 10 installments, you must enter the values in the next 10 months.
That way, it will be possible to plan better.
Know what month the bills will be tightened.
And whether it will be necessary to reduce costs or make more sales in cash to be able to pay for the equipment.
5. Familiarity with technical terms
To make a good management of your company, it is necessary to know also some technical terms.
Among those that are very important are profit and billing.
But are not they the same?
Confusion is to some extent common, but they are not synonymous concepts.
Understand the difference:
- Billing : This is the total amount that your company obtained in the month through the sale or provision of services and that you will receive from your customers, in cash or on time.
- Net Profit : It is the value of the billing discounted all fixed costs, variable costs and taxes.
It is not uncommon to see a small business owner make large sales volumes, have a high turnover, and the company break down.
Simply because he did not know how much he was actually profiting and what expenses needed to be cut.
And then you ask yourself: But why is not the net profit equal to what I have in the checking account?
This can be verified through the cash flow, which was explained earlier.
Thus, you can understand that the profit of the company does not become financial resource immediately.
Since it is very common that a good part of the sales is done in the term.
Have you seen companies earning $ 1 million a year, but breaking up right away?
This can happen because they did not perform a good financial control business and the result was a very low profit.
Or even because they were not programmed to align payment of suppliers with the receipt of customers , and became large debtors.
Also, not understanding technical terms like profit and billing, for example, can lead to bankruptcy because you think you are rich, earning high values.
But in fact, after the discounts of expenses and taxes, there is a very low balance.
Another risk is the delay in delivery of the bonds, which can generate fines or even the blocking of the company’s CNPJ.
If your company has debts , remove them by priority.
Pay for essential items first and negotiate interest with suppliers.
To pay off your debts, you can pursue forms of savings within the company.
with the cut of unnecessary expenses and to pay the accounts in the term, therefore of the form will not have the incidence of interest.
Applying for a bank loan to take out the company accounts should be your last option.
By performing the business financial control, you will be able to check all your debts and the balance available in cash.
But then you ask yourself: if you have money left over, what to do?
Invest or pay long-term debt?
If you have extra money, the indicated one is to remove your debts in advance.
Some suppliers may offer you greater discounts than keeping your money invested.
Before applying the positive balance of your cash, check which accounts can be paid at a discount.
And consider whether it will be more advantageous to invest or anticipate payments.
Also remember to pay the bills in advance:
besides generating savings, will give your company greater credibility with suppliers.
This is an essential item for financial control of a company.
When creating a budget , also known as budget , you should estimate how much you will receive and how much you will need to spend (or invest) during the year.
You can base your company history on the last year.
That can be extracted from your management software.
Or make an estimate over the past few months if your business is starting now.
The budgets are valid for a year, and ideally, you start the creation the year before to be able to plan all your expenses peacefully.
But if you start planning in other months, that’s okay.
The important thing is to get started, do it properly and use it as a management tool.
Because most values are estimates, it is often not possible to be sure of what you have been told, be prudent, and record your receipts with smaller amounts and larger payments.
For example, if your light bill always comes in the approximate amount of $ 300, report $ 350 in the budget.
For the values can be readjusted, and even then you will still be within the intended.
Also consider the salary increase of your employees and sporadic overtime payments , in addition to rent and inflation adjustments.
That way, you’ll have a more realistic scenario, and if you factor less than planned, you’ll still have money to clear your debts.
5 steps to making your budget
- Check how the company money is being spent, what are the fixed and sporadic expenses.
- Have short, medium, and long-term financial goals and set the step by step to achieve them. Align company expenditures with these goals.
- Make an estimate of future expenses and add to your budget.
- At the end of each month, review whether your company is spending and receiving what was planned based on the information in the income statement.
- Every three months, check the variations of what you’ve budgeted for and revise your budget. Remember to always align your expenses and receipts according to goals. And if you’re spending more than planned, you should definitely adjust or cut expenses.
Regardless of the area of your business, having a good planning is essential for the future of the company.
Set aside time, organize your accounts and your ideas and put on paper what your business is, your target audience, and the financial results you want to achieve.
Purchases made must also be planned to reduce the costs of your company, because in this way you will only acquire what is essential.
If you have fixed suppliers, partner to receive discounts on purchases or even negotiate better payment terms.
Despite this, always make quotes to see if another company is offering what you need for a lower cost. Thus, it manages to negotiate the purchase price.
You also need to optimize the management of your inventory .
With a well-done control, you have a better inventory turnaround, without buying over-priced items.
Always remember that before making a new purchase, you should check if the amount was in the budget and if there is money available for that purchase.
Planning is the key word before making any purchase.
The last step is to understand the cost of your product or service and all the expenses of your company.
For this, you must understand the differences between fixed cost and variable cost. Let’s go to them:
The fixed cost must be paid regardless of the amount of services you provide, or the items you sell.
It occurs every month and is important to the running of your business.
For example, your rent is a fixed cost, but not because you have to pay it every month.
It is because, regardless of whether the company is operating or not, this expense will exist.
Another example is your employees, because they will receive the fixed salary regardless of the billing made in the month.
Already the variable cost occurs according to the quantity of services provided or goods produced by your company.
Here comes the raw material, for example.
The amount of inputs you need to buy to bake cakes depends on the number of orders your company receives in a given month.
Can you understand logic?
If your employees work on a commission basis , this amount will go into variable cost.
Because the commission also depends on sales made.