5 Business Finance Questions You Need to Be Able to Answer

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Confused about your business’ finance? You’re not alone. Speak to any business owner and you’ll find frustrations around their finances often occupy their mind in the wee small hours.

And that the government keeps changing the rules each budget period doesn’t exactly help. But whilst it’s not easy keeping up with everything you need to know, ignorance is not bliss when it comes to your business’ finances. So we thought you might appreciate the following the answers to the five finance questions every small business owner finds themselves asking at some point.

1. What Does Your Cash Flow Really Mean?

Most business owners think it’s business is all about profit. But then why do businesses have have great ‘on paper’ profits and lots of business coming through the door – have to close their doors every year? Lack of cash flow. Every business has periods of high cash inflow and periods of high cash outflow. Simple enough, but did you know that just by looking at your cash flow trends can really help you to plan paying for your expenses so that you can always have a positive cash flow? Cash flow reqlly is king Take a look at your cash flow for the past few years and look at the months that bring in the most cash, and the months that bring in the least. For big payments like rent expenses and insurance, try to plan out your payments so that you’re paying more of your expenses during periods of high cash inflow, and reducing payments during times of low cash inflow.

2. Do You Really Need a Budget?

Yes! A budget gives you a sense of direction, and helps you stay on track. How will you know if you’re doing well or not? Every accountant will tell you, the amount of money you have in your business bank doesn’t actually mean much – it’s merely a space that cash passes through (a container if you like). With a budget – if you meet your revenue budgets, or come in below your expenses budget, then you’ll know you can celebrate. If it’s the other way around, maybe a celebration isn’t quite in order yet. It also helps you plan when you can bring on staff members, if you’re ready for an out of home office yet, and help you plan purchases of things like vehicle/equipment upgrades.

3. Aren’t All Expenses the Same?

Not from a business perspective. To give you a simple rundown there are two main types of expense: fixed and variable. Your fixed costs you can’t change, and they include things like your rent and salary. And then you have your variable costs, which do change. These include things like the raw materials that go into your product. No matter how many widgets (or services) you churn out, you’ll still need to cover your fixed expenses. If you’re having cash flow problems you can adjust your variable costs, for example by finding cheaper inputs through reliable vendors – or dropping the more expensive you produce.

4. Are You Pricing Your Products at the Right Price?

The answer to this question needs to take into consideration a number of variables. Don’t just look at your competitor’s pricing and assume that is where you should set your price. You need to look at your production costs and the market demand as well. Now if this seems a little overwhelming don’t be afraid to ask for help! An expert can really help you find the right price for your products so that you can cover expenses and still turn over a profit.

5. Do you really need to look at detailed financial reports every month?

Well no you don’t need to, but you should. A good bookkeeper or an accountant is a great asset to have in your business, and takes a lot of this confusing financial work off your hands. It’s good to sit down with them every month, or every couple of months, so that you can really see what’s working for your business and what isn’t. They won’t have quite the same stumbling blocks and emotional attachments that you might have to things. They’re likely to challenge you to make better decisions. Then you can go back and make adjustments, and check to see if those adjustments made a difference the next time the two of you meet.

If you need more than just financial help for your business we can help you by answering your phone, doing your admin work or by providing you with the right space for your office. We’d be delighted to talk on 9994 8000 or you can drop us a note.

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Article by Michelle

September 18, 2014