There’s an integral relation between business and finance. Every business maintains a balance sheet in which it registers all its assets and liabilities. As its profit margin increases and new sales keep coming in, it updates its balance sheet, and hires a new accountant to look after the financial matters.
A company’s financial considerations depend on its scale. If it’s a small business, then its sole consideration should be growth. On the other hand, if it’s a large-scale business, then it should consider becoming the market leader.
A company’s financial considerations depend on its scale. If it’s a small business, then its sole consideration should be growth. Large scale businesses, on the other hand, focus on becoming the market leader. Hence, their considerations are different.
How to define a best investment? When you invest the cheapest of your assets, lower the risks, handle the marketing activities smoothly, and get a fabulous ROI, it’s a best investment. You buy the latest model of laser printer, which can print 1000 copies a minute, but lose few clients over the time. The investment decision was wrong. You should’ve purchased an inkjet printer instead.
Set realistic goals
Realistic goals are easy to achieve, and so, financial goals for a small business should be realistic. Set a timeline and a target. Identify the bottlenecks. Work hard to get rid of them. Set a profit margin. If you fail to meet that margin, that means your efforts have ended in vain. If you meet the margin, try to cross it next time.
Mainly large companies tend to go for cost cutting measures. During the 2008 recession, many of them laid off workers because they wanted to bring down the operating expenses. If cost cutting is done by a startup, that indicates it is not getting enough business. On the other hand, if it’s done by an already established company, then that indicates saturation.
Tracking the expenditure is no easy job. A business needs a team of expert accountants for this. Alongside, they need to use cutting edge tools. The benefit of expenditure tracking is you get a 360° view of your spending. Sometimes, the balance sheet doesn’t show everything. Advanced expenditure tracking methods, followed by experts can give you all sorts of financial insights.
Tax schemes vary depending on the nature and size of the business. If you are an aspiring entrepreneur, then talk to a financial advisor before setting up a business. Startup companies need to know all kinds of tax because they often project the data on the balance sheet, but taxation is not something that one should project.
As for big businesses, they pay various types of tax including sales tax, excise tax, employment tax, etc. They have in-house teams of financial experts, who handle it on behalf of them. Hence, it’s a not a big concern for them.
Merger and acquisitions
It’s important for a startup as well as for an established business. Many startup companies eye at acquisitions. They don’t focus on growth, but on developing that will capture the attention of every big player in the industry it belongs.
When a large corporation proceeds to acquire a startup company, it considers how the workforce, the service or the product of the startup could be utilized to bring growth. Big companies also merge with each other to end competition. Startups, however, look at mergers as opportunities for growth.
It’s quite similar to merger and acquisition. Startups are at the receiving and established companies are on the giving end. Just like a product or talent acquisition, a company’s potential or product attracts investors, and they decide to invest in it. After bootstrapping themselves, most startups hope to secure venture funding for future growth.
For success, a business needs to dig deeper into customer feedback. Feedbacks from customers matter for every business, if the business operates in the B2B vertical, then it needs to convince business clients that its product/service can bring more growth for them. If it hails from the B2C niche instead, then it needs to reach out to end users, and deliver them a grand product experience.
Beyond balance sheet
The scope of finance is beyond the balance sheet. In other words, there’s so much to it that a mere balance sheet cannot cover. I have discussed some aspects here and I hope it will serve as a guide for businesses of all types and scales.
What do you think of the article? Do you have a business? What is your experience of running it? Let us know in the comment section.
Tina Roth is a blogger at Pro Finance Blog, a leading online resource providing high-quality “useful” content on personal finance, money management, debt solutions and many more where her aim is to help people you attain financial security through following the right advice. Apart from Pro finance blog, she also is the co-author at Finance Guest post – a community for personal finance bloggers.