Financial Tips for Business #2
Goalsetting for Businesses
Businesses should be setting new goals on a regular basis, but at least annually. Goals should be set for the shorter, medium and longer terms. Business goals can include: to grow the client base, to make more profit, to repay outstanding loans or to expand the current products and services. Be specific and realistic when setting goals and attach timelines to every goal. Goalsetting has a direct impact on budgeting, forecasts, cash flow projections, tax planning and financial stability.
Savings Accounts for Businesses
Businesses should set-up a few savings accounts separate from the normal operational bank accounts. These savings accounts can be used to save money for tax payments, VAT payments, staff bonuses, buying new computer equipment, expanding to bigger offices etc. Separate savings accounts do not only offer higher interest rates than operational bank accounts but they can also be used to manage finances more effectively. Access to these accounts should however be tightly controlled and the accounts should be reconciled on a monthly basis.
Liquidity of Investments
Liquidity profiles of businesses’ investments should match their operational and financial goals in other words money should be accessible when needed. Don’t invest operational cash that you might need in the next few months in a six-month or longer fixed deposit. Putting away money to buy new equipment, to expand or to buy new offices in a few years can be invested in investments with longer-term liquidity profiles. The same rule applies for investments with a long-term view in mind. Proper planning will ensure you have access to your money when you need it and also avoid paying penalties when withdrawing money prior to the investments’ maturity date.
Businesses can create improved cash flows by paying their creditors as late as possible, but still within the agreed period. However the money due to creditors shouldn’t be used for operational needs in the meanwhile without having a definite plan and income source to replace it before it is due. It is always an option to negotiate preferential payment terms with your creditors when cash flow if tight. Avoid paying creditors late though; unnecessary penalties and interest might be charged and an unfavourable credit record will be the result.
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Written by Ronel Jooste
CA(SA), Financial Consultant and Coach, Blogger and Speaker
Contact Ronel: email@example.com