Having your own business is a very exciting thing indeed. The whole process of thinking, analysing and coming up with out-of-the box ideas can be a mind numbing thing at times. Every year, thousands of young, enthusiastic souls come up with an innovative product or idea and decide to turn entrepreneurs. But even wondered why only some of them succeed while others bite the dust? Why doesn’t everybody turn out to be a Richard Branson or Lakshmi Mittal, the steel magnate? Well, business is largely about finances and how you take care of it. You might be having the best product or the most brilliant idea, but if you falter with business finance management, chances are that you will fall flat on your face.
So what exactly is business finance management? Speaking in broader terms, business finance management is the efficient use of resources with you, taking critical decisions regarding your finances and ensuring that the finances are made use of to increase the assets of the company. The entire process of business finance management is a stressful one indeed and involves the permutation and combination of various assets, all at once, to ensure good financial health of the company. The whole process of business finance management is effective only if a balance is established between the involved risk and the control measures.
The involved risk in case of business finance management is the acquisition of money through various financial sources. The sources are aplenty in the field of business finance management- there are stocks, equity, secured loans, unsecured loans, foreign investment et al. Loans are the least risky source of procuring finances for a business. But at the same time, loans are the also the most expensive of all the sources mentioned above. The sources of equity and stocks involve the highest risk when it comes to assured returns. However, both the sources are also the cheapest when compared to other financial sources. It is this paradox which comes under the ambit of business finance management. Business finance management involves the optimisation of such scenarios to keep a fine balance between the risk and the cost factors. For example- let us take a small example and say you want $10,000 dollars for research and development purposes in your business. Now, if we take a loan, secured or unsecured for the entire amount of $10,000 it would put undue pressure on the finances of the organisation for a long time to come. Similarly, investing money in equity and stocks to raise the entire amount would be too high a risk and it could pose major financial problems for the business. A middle path would be to take a 20% loan while raise the remaining 80% through equity and stocks. This is just one of the many important aspects of business finance management.
Another aspect of business finance management is cost cutting. And given the worldwide economic turmoil in the past couple of years, this area of financial management has come into prominence all over again. Cost cutting is the reduction in the expenses of the business without compromising on the quality of service or products. There are various methods which you can use for effective business finance management involving cost cutting.
- Personnel Management – This method of cost cutting and business finance management was the most talked about in the last two years. Hundreds of people lost their jobs, which led to worldwide angry protests. But the truth is that business finance management involves a lot of hard decisions. A business, broadly speaking, has two components to it- the product or the service and man power. And it is the manpower which forms a considerable chunk of the total expenses of a business. Hence, for effective business finance management, effective personnel management is of paramount importance. Sometimes, if the situation is not very bad, you could make do with stopping the hiring process for a while rather than laying off people at a later stage. Very often, it is a combination of poor business finance management and bad HR practices which lead to surplus manpower and eventually, lay- offs.
- Marketing Budget – We all know that in the competitive world of today, marketing is de rigueur. And effective marketing of a product involves a huge budget. It is the task of business finance management team to review the marketing budget from time to time. Reviewing involves discarding of all the marketing techniques which are not yielding results. Often, the advertising field of marketing runs up huge bills for a business. It is important to spend judiciously on advertising in order to maintain sound financial health. All this is a part of business finance management and cost cutting measures.
- Administrative Costs – This is the next big spender when it comes to a business. The equipment and the tools are important to run a business. However, a good business finance management strategy would be to take the equipment on rent rather than purchasing it. Another method of effective business finance management and cost cutting can be to procure used equipment. Used equipment which is in good running condition is available at a much lower cost than new equipment.
Some of these aspects may seem too small to be of any help in business finance management. But the truth is that if you manage the above factors effectively, chances are that you would never need to file for bankruptcy. After all, be it any area of life, it is the basics which hold the key to success and need to be mastered. But then again, everybody is not born with business finance management skills. Therefore, there is nothing wrong in getting some help. One way to ensure effective business finance management is to hire a group of financial experts to deal with the finances of your business. However, a more cost productive way for effective business finance management is to undergo business finance management training. There are many financial institutions which keep running short term courses in business finance management. You would do well to enrol yourself in one of them.