The Secrets of Financial Monitoring For Big Businesses and Freelancing Success
Cash flow challenges are the fundamental reason why companies that fail close down.
If you are seriously interested in making your business a success, then managing your money effectively is critical to the security of your organisation.Even if you only have a simple home based freelancing operation, or manage a multi million pound company, tightly managed finances and a positive cash flow, are key factors in business success.
When founding a new enterprise it might seem hard to put together a budget without any financial background on which to base sales and costs. However a business plan, before you even start, with some idea of expenses and turnover is essential to determining the viability of a organisation, even if you are just planning to setup a work at home freelancing operation. It might seem like guesswork at the beginning, but a tentative budget can be established with some thought and projections of future business. From some past experience in renovating properties, I always say ‘think of a figure and double it’ and then you will be near the mark. I think this is true for other organisations, because it’s human nature to underestimate what we need to spend and over estimate what we will earn.
As all businesses do the electricity price comparison business we run has two categories of business finance, income and expenses.
Under the expense category there can be many sub-categories often falling into two main areas of controllable expenses and uncontrollable expenses. While many business proprietors and freelancers believe they can control every expense involved in their organisation, this is not generally the case. Some things such as services costs, the amount of rent and other supposed fixed costs can, and do change, with the owner having no control. For example the recent increase in oil prices are an example of this and have been the reason a number of small airline and transportation firms going out of business as their fuel costs skyrocketed.
Other expenses such as payroll, insurance and advertising can be subject to a budget, but they are considered controllable expenses. If the revenue begins to reduce, you can control some of these costs by laying-off staff and cutting back on advertising. However, living by a budget may help maintain profitability but could also be counter-productive in the end.
Depending on the viability of your business it may be a better option to bite the financial bullet on employee wages and still provide good customer service to the remaining clients until business picks up again, or consider outsourcing and freelancing for when you need a bit of extra help but without having to hire new staff. If no one supports of the clients, it will not be long until there are no more customers to care for.
There are 2 ways to budget your business finance and these are through set amounts or as a percentage of revenue. Many businesses will budget their controllable expenses by the pound and non-controllable by percentage of income. Obviously a good part of the owner’s time is going to be based on bringing revenue into the company and how much they have to spend on controllable expenses will be in direct relation to sales. With any upturn in sales the owner will probably need the extra help to take care of the business so a percentage of income will go to more wages, thus freeing the owner to focus on generating additional revenue.
There are many other expenses that fall into the payroll account such as worker’s compensation charges, National Insurance tax paid by the employer and paid vacation time or other perks determined by the organisation. These need to be calculated into costs when recruiting new employees into the company, unless you make extensive use of outsourcing companies.
While you may feel that a budget is difficult to establish for a new organisation, it is vital to establish a healthy and sound financial footing on which success can be built for the future.
About the Author: Roger Davies, is the web design team leader at Advanta Productions. Advanta was formed in 2004 to provide highly affordable, highly skilled website development and e-commerce web design services to businesses in the Midlands areas. Roger’s team work on website development and e-commerce web design projects for successful businesses advertising and selling via their websites. All enquiries to 0845 22 55 805 or at the Advanta website.
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Tags: Business Finance, Business Plan, Business Proprietors, Business Success, Cash Flow Challenges, Controllable Expenses, Electricity Price, Financial Background, Freelancers, Fundamental Reason, Guesswork, Human Nature, Managing Your Money, New Enterprise, Oil Prices, Positive Cash Flow, Pound Company, Tentative Budget, Transportation Firms, Viability
