How to Improve Business Operations with Proper Expense Management

How to Improve Business Operations with Proper Expense Management

For every single business, the importance of proper expense management is always huge. If you have just started your business and you are trying to improve your business operations and overall profits, then you must know that the expense management holds a key to your success. We have seen business having huge income but, they were unable to improve their situation because of the bad expense management.

It is always necessary for you to go through the things that will help you in the best way possible. There are multiple ways to improve your business operations and earn good profits and the first way is by managing your overall business expenses. It is necessary for you to go through the details that will help you manage your business expenses, improve your profits and get your business on track.

Moreover, you should also understand the basics of managing your cash flow when you are starting your business. You should always deal business as a separate entity and make sure that you are not jeopardizing business operations in any way. Here, we have come up with few important ways to improve your business with proper expense management.

Automation is the right way to do so

Most of the companies are using the automation that helps them track their overall expenses. It is always better for you to automate the expense management so you can avoid all the issues. Finding the best way to manage your business operations can be hard. If you have just started your business, then you should consider automation to improve the expense management. It is the best way to proceed so you can improve the productivity by cutting the costs and focusing on the right places.

Try to find a professional

When you are trying to find the perfect way to manage your expenses, then you should consider finding the best professional service. If you are not sure how you can manage your expenses, and you have no idea how to track them, then you must consider getting help from the professional. You can hire expense management service so you can come up with a great solution. It will help you improve your business operations and you will also help you with the cash flow management. If you can control your expenses, then you will be able to improve the profits of your business.

Look for better price when purchasing

One of the best ways to manage your business expenses is by finding the products at the best price. If you have to make purchases for the business, then you should look for the best price so you can come up with a great solution. By finding the equipment and other products for business at the best rate, you will be able to reduce the overall cost and you will be able to avoid major issues. Make sure that you are finding the right vendors that will give you the best rates when you are making purchases for the business.

Expense tracking

Expense tracking is another way to improve your business operations. By doing proper expenses management, it will become a lot easy for you to check things in detail. One of the best ways to improve your current business situation is by tracking the expenses properly. If you are spending money on something specifically on a regular basis, then you should always try tracking expenses so you can come up with a great solution. Expenses management can become a lot easy with proper expense tracking so you can know your expenses for every single month.

Plan things properly

If you are running a business, you must plan things properly. When you are trying to improve the cash flow management process and you are trying to reduce your overall expenses, then it is always better for you to plan your goals. Once you have planned things properly, you can then take proper measures to achieve the desired results. Moreover, you will also have to be tough when you are trying to control the expenses and make sure that you are analyzing things properly so you can do effective expense management. It is the best way to proceed when trying to cut down the costs.

Improve things step by step

You won’t be able to improve things quickly for your business and you must understand that it will take some time. You can only improve things step by step. If you are trying to track down your expenses and try to cut the variable cost, then you must know that it will take few months to do so. It is always necessary for you to be patient when you are trying to control your overall expenses and trying to improve the business operations with proper expense management.

Small Business Finance

5 Small Business Finance Basics You Must Understand

Finance is at the core of every business- there is no denying that. However, while large businesses can afford to have the best finance gurus to keep tabs on the money, small businesses often have to learn a lot of these things through trial and error. There are many moving parts in the finance management system which is why it can be overwhelming to keep everything under control.

Here are five small business finance basics that you should understand to run your company efficiently:

1. Profit Margin

The first thing to understand about margins is that they are of two types- gross and net. The former is used to measure the profitability of a single commodity. So, if it costs you Rs. 2000 to make a product and you are selling it at Rs. 2500 then your gross margin is Rs. 500. Most small businesses use gross margin as a metric for their profits. However, looking at the big picture it isn’t of much use, and here net profit margin comes into effect.

Net profit margin is calculated by deducting all of your business expenses from the total sales and dividing that figure by the total revenue. So, if you generated Rs. 3 lakh in revenue last year, and your total expenses were Rs. 1 lakh then your profit margin can be calculated as:

Profit margin= (300,000-100,000)/300,000 =  .66, or 66%

It is important to note that profit margins are industry-specific. Thus, you will find that business owners in some industries make more money than those belonging to other industries. For instance, many big food companies have net margins of just 4% or 5%. However, consultancy companies can have way higher margins, because the overhead there is little.

When you start your business, your margins are usually high, but as it scales you have to buy more equipment and hire more staff, which eventually lowers the gross margins. However, the net margin is what matters at this point, and it can increase if you make the right business decisions.

2. The Balance Sheet

Balance sheets serve as a financial dashboard for your company which you can refer to at any point to time to get a quick understanding of where you stand financially.

There are three main components of a balance sheet, which are:

Assets

There are mainly two kinds of assets: current assets and non-current assets. The former are most likely to be converted into unrestricted cash within one business cycle (12 months in most cases), but the latter will not. Inventories, accounts receivables, etc. are considered as current assets.

If you have a large number of assets or cash on your balance sheets then you can attract investors easily. This is because these can be used for protection in rough times or for scaling the business in future.

Liabilities

Just like assets, liabilities are of two types: current liabilities and non-current liabilities. Current liabilities are obligations that must be paid within one business cycle, such as payments pending for suppliers, etc. Non-current liabilities are long-term obligations such as loan debt, etc.

Equity

Equity is the ownership interest of shareholders in your company. It can be calculated by deducting total liabilities from total assets. Thus:

Equity = Total Assets – Total Liabilities

Businesses often have to sell equity shares to raise capital for purchasing equipment, making investments, etc. However, each time you sell you lose a portion of your company. Thus, you would want to hold onto to your business as much as possible. Selling an investor 51% or more of your business in equity means giving away the decision power. This can change everything, and thus be chosen only as the last resort.

3. Cash flow

Cash flow is the total amount of money that comes in and goes out of your business. It is one of the most important numbers that you and your stakeholders should know about. Unfortunately, it is often overlooked in lieu of other numbers on the balance sheet and income statement, etc.

New businesses often use the phrase “to be cash flow positive”. It means that you are bringing in more money than you are spending. Similarly, to be cash flow negative means more money is being spent than generated. Or in other words- the business is actually losing money.

It is important to make cash flow projections a part of your budgeting process to stay on top of the financial activities. Not having a sound understanding of how cash flow works can lead to disastrous results. For instance, you can end up waiting for payments from clients while there are several bills to be paid already. There should be sufficient cash flow so that you can cover all the expenses while staying cash flow positive.

4. Business Financing

Funding is one of the major challenges that small businesses have to face. Whether you need initial funding to start a business from scratch, or to meet short-term obligations it is important to get the money from the right source. Making a wrong decision here can have serious repercussions that includes losing a large portion of your company. The following are two of the most common business financing options that you can consider:

Debt Financing: Debt financing is the simplest way to fund a business. It works the same way as any standard personal loan or home loan works. To get a business loan you can simply contact a bank or a P2P lender (which is becoming more popular lately) and submit an application for the same.

Equity Financing: Businesses only go for equity financing when they are unable to get a business loan. This is because while you don’t get debt on your hands in this method you lose something even bigger- a part of your company. You basically sell off your company share to a venture capitalist. So, you don’t have to pay back the money, but the seller becomes a part-owner.  Equity financing is also more complicated than debt financing. You have to consult with the existing investors before making decisions and work on the legal aspects of the transaction before finally receiving the money.

5. Payroll Calculations

Payroll processing is comprised of calculation of payments that you make to your employees. Since there are several factors involved the process can be quite complicated.

According to the minimum wages act of India, you have to include some mandatory components in their payrolls, such as Basic (basic salary), DA(Dearness Allowance), and HRA(House Rent Allowance). You also have to make certain deductions from the salaries in the form of TDS (Tax Deducted at Source), etc.

Understanding business finance basics is imperative to a successful business. Without this money management can become complicated and difficult to track. Thus, it pays to get a sound understanding of how the business finance works and use it for making the business decisions.

how to manage cash flow with a small business loans

How to Manage Cash Flow With a Small Business Loan

Cash flow is the lifeblood of every business, whether it’s big or small. However, when small businesses or startups have to take business loans, it changes everything. Not only the business has to maintain enough cash flow so that they can pay for inventory, staff, and other expenses but also the loan installments as well. Money management also becomes a challenge as there are several factors to keep an eye on.

If you are having difficulty in managing your business cash flow along with a small business loan, then here are a few tips that can help you:

Planning Ahead

Don’t leave any room for surprises. Nothing is more daunting than desperately searching for cash when you have to pay your employees or the loan EMI that’s pending. It always helps to keep a record of your previous cash flow statements and expense reports when you have to anticipate future expenses. This will help you maintain a healthy cash flow as you can easily check where your money is going and what’s to come in future.

Shrinking Cash Outflows

Running a business along with a loan can make it difficult to stay cash flow positive. While you can’t usually reduce your loan EMIs easily you can still reduce your cash outflows to some extent by:

  • Buying used equipment: Why invest in 100 new computer systems when you can get used ones for less than half the price? If you are lucky you can get them in excellent condition at a local auction or at a classified ad posting website.
  • Cutting Down on Luxuries: Hosting weekly office parties can be good for boosting the morale of your employees, but when you have to save money such kind of luxuries can be avoided, at least until the loan is fully repaid.
  • Finding a Better Provider: Many businesses depend on vendors who supply hardware or software services to them. Maybe you can replace your existing vendor with someone else who is providing equally good services at better prices.

Securing a Line of Credit

With the rise of new FinTech companies, even small businesses are now able to enjoy a variety of financing services. One of these is Line of Credit or LOC.

An LOC is akin to traditional loans, but you only need to pay interest on the amount withdrawn. For instance, say you secured an LOC of Rs. 3 lakhs from a financial institution, then this is the amount of credit available to you. You don’t have to pay a penny until you actually withdraw the money. So, if somewhere along the way your business runs into some problems with the cash flow then you can withdraw a portion (or even full amount) of the credit amount, say Rs. 1 lakh. With this, you only need to pay the interest and the fees (if applicable) on the withdrawn amount only, which in this case is Rs. 1 lakh.

LOC is a really convenient and affordable option if you want leverage when you have a business loan but need to maintain cash flow at the same time.

Becoming Stringent With Payments

Do you let your customers delay payments without any repercussions? This could be extremely bad for your business. You can’t organize your expenses and keep the cashflow under control unless you get your payments on time. You can thus create a strategic process for dealing with delinquent payers that could involve:

  • Sending an initial email 10 days following receipt asking for payment.
  • Calling up the customer directly after 20 days for the payment.
  • Sending away a clerk to the customer’s address in person for payment collection.

Being nice is one thing, but in business you should not let your emotions affect your decisions. You can’t run your business successfully if won’t put your feet down when needed.

 Embracing Technology

Since small businesses often have to struggle to create an identity and obtain market share, it doesn’t help that they have to track their expenses as well which alone by no means is a walk in the park. Thus, it helps to have a specialized software that can do all the formatting, updating, and calculation of all these expenses for you. If anything, this makes one less thing to worry about, and you can use the time saved in building your business.

Cash flow Management at a Whole New Level

A comprehensive business software can greatly improve your existing cash flow by limiting the margin of errors in calculations and expediting invoicing and payments altogether. Here is how you can make the most of it:

Organizing Your Billing Schedule

You should keep a track of pending payments and send the invoices on time every time. This ensures that your cash flow doesn’t dry up and your business stays operational. You can also take care of your loan payments without worrying about debt accumulation when you know that everything is on schedule. Managing the same without an automated system can be quite difficult, and thus not even advised by most professionals.

Keeping the Pricing in Check

Are you charging adequately for your services and products? Many times businesses become so caught up with expansions and other business operations that they delay raising prices with inflation, etc. This can be detrimental to the cash flow. However, with a billing software you can easily check if you are imposing reasonable tax on the products, and price them adequately as well. You may need to charge certain clients more due to some extra services, their location, or requirements, etc. This can make creating custom invoices for them difficult. With an Invoicing software, you can easily customize a base template depending on your clients. You can add or delete certain fields from the invoice as per your requirements and send custom invoices in a matter of minutes.

Analyzing Weekly Cashflow Statement

Monitoring your cash flow is extremely important to ensure there is a healthy balance between the cash that’s incoming and outgoing. There are so many expenses to cover, loan payments to take care of, employees to be paid, and more. At the same time money can come from various sources- individuals, businesses, and more. The best way to review these transactions is to use a billing software that can provide all the details in an organized and simple manner. You can check these details on a weekly basis to ensure you are on track. Even if for some reason you notice that the cash flow is depleting you can pinpoint the weakness and take appropriate measures for restoration.

numberz is one of the few business management software in India that comes with a full range of tools and services that can take your company to the next level. In an industry where businesses are facing neck to neck competition, automated software can certainly give you an edge and improve the cash flow.