Businesses are built on money – after all, the purpose of a business – to generate income for its employees and profit for its owners.
New business owners are not always great on the financial stuff. Not all entrepreneurs are cut out to manage the accounts, and business’s finances. However, many people have made a career out of it, so if you feel overwhelmed when looking over your business’s bank accounts, you aren’t alone, and you can hire in the expertise.
Ideally, all startups will have an accountant either on the books or external as a service provider. The startups that don’t know if they are financially sound and on the right path to profit need help. Here is a guide to the complex world of business finance – and why you probably can’t manage it alone.
What Finance Departments Do
Even a finance department that consists of a single finance guy or gal is vital to the stability of a business. At its least impactful, a finance department manages day-to-day accounting, which includes tracking transactions made by management – i.e. you.
The finance person will observe the business’s cash flow, ensuring enough funds to make the purchases you want. Typically, the finance department also governs your business’s credit and collections realm, confirming that customers are paying on time and in full.
Of course, most finance departments will do much more than simple bookkeeping. A few times every year, the finance person will aggregate these records and generate financial accounts.
It is common for finance professionals to use the data they compile to generate financial forecasts of cash needs, so you will always know how much you have available to reinvest into your business.
Additionally, because they already have a familiarity with the business’s finances, finance professionals can effortlessly complete your business’s tax forms quarterly or annually.
Those who are well-educated in finance can help your business secure enough capital through long-term financing options. Eventually, your startup might need backing from angel investors or venture capitalists, and your finance person should be able to research likely candidates and draft the documents necessary to capture their cash.
Though your finance worker shouldn’t necessarily be given free rein over the funding for your business, it will be beneficial to listen to his advice.
Once your business becomes massively successful, your finance department will have an even more vital role in managing operations and assisting growth. Using budgets and close supervision, your finance people should be able to accurately predict staffing requests, expansion opportunities, and cash needs before they occur. Staying aware and ahead of your business’s demands will help you stay solvent while maintaining growth.
Why This Isn’t a Time to DIY
As a business owner, you don’t need anyone explaining that you have too much to do. Even assuming you have secured enough funding through loans and investors to get through a year, you still have marketing strategies to develop, growth models to build, licensing to secure, products to test, sales to make, and customers to please – and that’s the least of it. The last thing you should want to add to your to-do list with a monumental task like finance.
Finance is complicated, which is why good finance people make an extraordinary amount of money. If you ignore these warnings and attempt to navigate the stormy waters of finance on your own, you might expect a few rough waves. For example, if your reports are incorrect, you could make poor business decisions that result in undervaluation of stock or high tax liabilities. Even worse, if numbers don’t add up, your stakeholders might find your business less-than-credible and pull out entirely, causing catastrophic failure.
The fact is that proper financing makes or breaks a business. If your books aren’t rock-solid, your business will fail if you don’t know where your money is going and in what quantities it’s coming. Unless you are an entrepreneur with a background in finance, you simply don’t have the knowledge or skill to balance this complex task on your own.
Like it or not, you need a finance person to help you manage the money side of your business, and you need him sooner rather than later.