Business finance is a topic that has multiple sectors such as financial management, acquisitions, business loans, working capital management, access to capital, capital budgeting, comparative industry analysis, marketing, cash flow and more. Working capital management is one of the most essential parts to stabilizing a business, whether it is a large corporate giant or a small business.
Cash flow is one of the most important aspects of business finance. Many experts have expressed how essential it is, especially in regard to obtaining business loans.
“Your ability to have cash flow is the utmost important piece for businesses to demonstrate,” Criag Veurink, a business banking regional executive for U.S. Bank’s Midwest Region says. “Banks want to know if they can manage cash appropriately, and have the right amount to come in to support the debt, and that they can maintain that overtime. Cash flow is really king.”
Properly managing capital is when business owners learn to govern their short-term liabilities and assets. It also consists of constantly optimizing the cash conversion cycle, inventory, and accounts receivable. A company must master their overall balance sheet, cash flow statement and income statement in order to thrive and always stay ahead of the game, in order to make sophisticated decisions.
This will in turn, help the company maintain good financial health and forecast if any issues may occur down the line. Accountant and business coach of the Fellow of the Association of Chartered Certified Accountants (FCCA) , Zoe Whitman, says “Apart from the legal requirements, financial statements can give us a huge amount of insight into business performance. We can see anything from how profitable our business is, to how long it takes our debtors (customers) to pay us.”
Business experts from a 2022 Small Business Guides & SBDC report compiled a list of business finance guidance documents and wrote about the importance of cashflow and financial health of a business. “The Cash Flow Statement is valuable, but the statement does not show your company’s financial health. You also need to review your Income Statement and Balance Sheet to gain a complete picture and make smart decisions.”
The statement from the report went on to say, “You can produce a profit, but still not have positive cash flow… if your cash is tied up in inventory, or your receivables are late.”
Michael Bedell of Bedell Property Management stressed the importance of having a solid system that allows a business owner to see all of their raw data in real time. “It’s OK and fairly normal to be lost or overwhelmed by not ‘knowing your numbers’ — the real key is doing something about it before it ruins all the hard work you’ve put into your business. The best resource in my opinion for accountable financial management is building systems and a team around your business,” said Bedell. “It starts with a system that will give you accurate data in real-time. Next, build a team of people around you who can take that data and help explain what you don’t understand.”
This brings up another part of business finance that is important, financial forecasting. Businessowners must know, or at least have good judgement, as to when expenses may increase or decrease, or when cash flow will improve.
“The goal of business forecasting is… running your business right. WIth good forecasting you track your business numbers back to the drivers that you need to manage. If sales are down, you adjust expenses. It doesn’t take pinpoint accuracy. It takes good educated guesses.”
Nick Chandi, CEO of Forwardly said “Running a small business can be unpredictable, but financial forecasting helps bring some clarity to the chaos… by anticipating income and expenses, you can maintain a healthy cash flow essential for sustaining operations.” He continued, “This foresight also fuels strategic planning, empowering you to make informed decisions about expansion and staffing.”
Small businesses will have their strong moments of revenue and low moments, which is why forecasting is important. Building a cash reserve allows a small business to have some money put away for unexpected expenses or financial hurdles that may come along the way.
Financial expert Thomas Griffin of OptinMonster gave insight on how having a cash reserve helped his company. “Building a cash reserve specifically for unexpected expenses was very helpful for optimizing our cash flow. By setting aside a portion of profits during high-revenue periods, I was able to create a financial buffer that helped us through leaner times or unforeseen financial challenges,” said Griffin.
Yet, access to capital in order to start the ground work of a small business is an ongoing challenge for all small business owners, specifically, minority owned businesses have more of a disadvantage than their white counterparts.
Chair of Goldman Sachs 10,000 Small Businesses Voices National Leadership Council, Jessica Johnson-Cope, said the following. “Owning and operating a business is a challenge in the best of times, but American business owners are struggling to navigate the uncertainty around important federal policies and our lack of access to affordable capital to grow,” said Johnson-Cope.
All in all, maintaining a small business requires in-depth work that centers upon thorough management of capital, access to capital, financial forecasting, and knowing your metrics and numbers in order to keep the business running smoothly.