Your small enterprise could create a ripple effect. It could contribute to its community by generating jobs. It could help boost the local economy with sufficient tax payments. It could, on the macro level, shape the national economy because as politicians have repeatedly said: “Small businesses are the backbone of the economy.”
The Department of Trade and Industry (DTI) reports that 915,726 businesses are operating in the country. And micro, small and medium enterprises (MSMEs) make up about 99.57 percent. Clearly, your small footprint has the potential to create an impact.
But how well you leave an imprint depends on how well you run the business — and a significant part of that is managing your finances.
Your Company’s Money
In its most basic concept, your business’s finances mean keeping track of the money that comes in and the money that goes out. Failure to maintain control over these movements could mean a profit loss. But mastery of your company’s money would mean preparing adequately for a downturn, maximizing opportunities, and being in the black.
Your finances cover three critical areas:
- Cash flow – The amount of cash that enters and exits needs to support your activities, especially when the market is slow, and merchants and suppliers pay late or consumers are spending cautiously.
- Pricing – Pricing strategy can influence your cash flow and profitability because, for one, it allows you to stay competitive.
- Taxes – Your fiduciary responsibility to the government has to be met, but knowledge of incentives and tax breaks could help you enjoy the benefits.
Tracking Your Finances
Whether you run a micro-business that employs only a handful of people or a medium enterprise with substantial capital, financial management should not be left to just the accountant. You’ll need one, of course, because a professional can handle all the paperwork more efficiently, especially when it’s time to pay your taxes, while you focus on the business. But as the head of the company, you need to have the skills and knowledge to take on multiple roles.
So it’s advisable to get an introductory course on accounting; you’ll be better prepared to make critical decisions that allow your business to scale up, or at the very least, weather economic fluctuations in the Philippines.
Alternatively, you can take a comprehensive program on financial management. This kind of program will allow you to not only get a handle on accounting, but it will also help you make strategic plans.
Considering the reported confusion over the TRAIN Law and the precarious economic situation in the country, your financial literacy is more crucial now than ever.
Everyday Financial Management
As a small business owner, you’re going to deal with financial reporting. Reporting the state of your business isn’t just for your guidance; it’s also to let your stakeholders know whether you’ve achieved goals for the fiscal year. These reports will include:
- Balance Sheets – which detail your assets and liabilities; because it’s an assessment of your business’s financial health, you can use this report to apply for loans.
- Cash Flow Statement – it tells you how much money is coming in and going out.
- Profit and Loss Statement – it provides information on your revenue, gains and losses, and expenses during a specific period. You can use this report to determine where to make cuts to prevent further loss or maximize gains.
But the majority of your time will be divided into the day-to-day running of your operations. So how do you manage money daily?
Here are several strategies to consider:
Always pay your bills
Utility bills, lease payments, credit card bills, and other relevant payments must be made on time. You don’t want to deal with penalties and inconveniences (e.g., utilities are cut off during crucial operations). And this goes for your taxes, too. Don’t risk charges that could put you in the red.
Negotiate contracts with suppliers
It’s a free market, which means you’ll have more than two or three people who need your business. Make that work to your advantage and negotiate contracts to get a better deal. When a discount isn’t realistic, see if there’s wiggle room for payment terms.
Monitor payments from clients
Avoid cash flow issues by tracking your accounts payable. Follow up those payments.
Keep your personal finances separate from business finances
Finally, never use your savings account for your business
You’ll only complicate matters once you need to keep track of your company’s finances.
Your small business could have a dramatic effect on your community and, potentially, the national economy. But you need to take control of its finances. When you do, you’ll not only strengthen your business through a recession but also ensure its growth.