Many businesses fail within the first five years.  One of the reasons they fail is lack of financial management.  Businesses must make a profit and control spending to stay in business.   

What is Financial Management?

Financial management is like a financial plan.  Businesses need to be able to plan ahead.  For instance, they must order seasonal inventory to sell and be able to pay for the inventory.  Business owners must know where they are now financially and where they are headed financially.  Finances play a large role in many business decisions.  There are a number of financial planning tools that you can use. 

• Start-up Budget .  This plans the income and expenses from the beginning of the business from the time of start up to the time the business is profitable.  This will include money that will be needed to pay for start-up costs.
• Business Budget .  This is a detailed plan that explains the plan for meeting the financial obligations of the business.  This helps ensure that the income that the business anticipates can cover the anticipated expenses.
• Operating Budget .  This is kind of a working budget.  It can be used day-to-day or for any period less than one year.  Again, this budget is focusing on (Income less Expenses) Or a formula like this could be used:  Income-expenses=profit or loss.
• Cash Budget .  This budget is to be used to let owners and managers of a business know if money must be borrowed for a specific period to cover expenses that may not be covered from income during a specific period.  It details the income or cash that will flow in and compares this to the timing of expenses.  At different times throughout the year, such as, property taxes, income taxes, the business may not have a large enough income base to cover the large expenses in that month.  Therefore, operating loans may have to be obtained to cover these costs.

Financial planning helps businesses meet their financial obligations and goals.  Financial records are important when trying to determine the financial strength of a company.  If you ever try to get a loan from a bank, they will be impressed if you come in with your financial budgets in hand.  The more professional and knowledgeable you are about your business, the more a bank and other professionals will want to talk with you about your business.

 I realize that this seems to be budget overload.  However, not every business will find a need to use every type of budget.  Determine which one or two work best for your business, and get in the habit of preparing a budget.  Take the time to get familiar with the budget process.