Airbnb, the world’s largest accommodation provider, owns no real estate and Uber, the world’s largest taxi company, owns no vehicles. Taking a cue from these successful companies, an estimated 3 million American professionals consider home as their primary place of work, according to Telework Research Network. By leveraging a wide range of digital, social media, and cloud-based tools, small business owners complete highly productive work and save money on office rent at the same time.
From cash flow gaps to applicable industry regulations, there are certain financially related areas where small businesses could use some professional guidance. This is also true of medium and large companies, whether they are just starting out or have been in business for a while and are looking at expansion.
Here are the five top areas where obtaining financial help can push a small business toward success.
1. Financial Reports
Businesses need to know specifically how they are doing at all times. To accomplish this, they need some help crunching their numbers and tracking the daily data that takes place in their organizations.
As startups and small businesses gain traction and grow, so does their accounting systems. That old spreadsheet that used to do the trick is no longer effective when you have hundreds of clients and dozens of suppliers. By having a professional help them generate meaningful financial reports, company owners can take note of important performance indicators and adjust course, as necessary.
2. Financial Statements
It’s important that a business get the help it needs to create financial statements. After the statements are generated, the professional can scrutinize the documents to spot errors, discrepancies, and inconsistencies. After the analysis is performed, comparisons and ratios can be drawn up and changes made, as needed.
Additionally, having accurate financial statements is a necessary measure in case of IRS audits. Freelancers and small business owners using Schedule C are twice as likely than corporations to receive an audit by the IRS.
Having a go-to accountant, increases your chances of having all of your business deductions in place. Beyond your home expenses, there are many other places where you can find business deductions. One example are the trips to work-related events, which give you auto mileage. Another are the business conferences that you attend seeking investors or clients. These two examples provide you a wealth of business deductions. An accountant can help you take advantage of every single of one.
3. Cash Forecasting
No business wants any unexpected changes or surprises in their cash flow, so it’s important to have the appropriate cash-forecasting systems in place. Effective systems are able to predict future cash flow on a weekly or monthly basis. By knowing what timeframes will be tight and which will be strong, management can adapt spending, billing, and all financial transactions to fit their financial situation.
Cash-forecasting systems are particularly helpful to help you manage cash flow during the holidays. While you may know that you’re going to get busy and need to hire some seasonal staff, you may not have hard numbers to work with. Without those projections, you can have a harder time landing a loan with a bank or securing financing with an alternate lending institution. Remember about 82% of small businesses are denied a loan. The more prepared that you are to back up your claims, the better your chances of getting a capital loan to cover cash flow gaps.
4. Accounts Receivable
When a company has help sorting out its accounts receivables, it can potentially improve its cash position quite rapidly. A professional can categorize the transactions by customer, amount, and date. During the course of the sorting, discrepancies and trivial items can be found and eliminated. The problems, which usually have occurred through invoicing and purchasing, may have started out small, but can lead to larger challenges unless they are dealt with.
Having a clear picture of the quality of your account receivables is also important in case you were to apply for asset-based lending. A financial institution issues asset-based loans against 70% to 80% of qualifying accounts receivable. Additionally, most lenders only consider your highest quality accounts receivable (under 90 days). Keeping close tabs on the collection times and balances of your receivables is essential for a sustainable operation and chance of landing financing.
5. Financial Expansions
Once a company has successfully assumed its position within the marketplace, the next logical step is expansion. To expand financially, businesses often need to incorporate technology in order to automate processes, which will allow them to perform tasks more rapidly and accurately. Because upgraded technology means increased costs, a financial analysis will need to be performed to work out benefits vs. cost.
When your business starts seeking for seed funding or any other type of capital, you have to be able to answer key questions, such as what is your monthly burn rate and how are you meeting financial regulations from government agencies or industry organizations.
If you’re in talks for a potential merger or acquisition, you should seek the help of a CFO or, at least, a well-seasoned controller, VP, or director of finance. While it may sound like a good idea to outsource a CFO, remember the financial debacle that took place when Zirtual outsourced its CFO. While it can cost you north of $150,000 per year to hire a CFO on a full-time basis, you should keep that cost in mind before you start daydreaming about getting acquired by a large corporation. If you’re not there yet, then you need to wait until the time is right.
Small business owners must wear many hats and perform multiple duties when it comes to running their companies. It’s challenging to handle everything without help. By having a professional step in to give guidance, a company owner can truly steer his or her organization toward success.
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