Running a successful business can be very challenging. In the constantly-evolving, technology-driven world that we live in, business owners have too much on their plate. They must hire the right people, build their brand, comply with laws and regulations, and continuously find new ways to stay ahead of the competition. Amidst all these responsibilities, one aspect of the business needs particular attention as any mistakes in this area can prove costly. It is the finance and tax functions of the company.
How can a business manage its finance and tax functions effectively? What is the secret to ensuring smooth handling of your financial affairs? To start with, business owners need to understand some of the common problems businesses face in managing their finances and be aware of the different options available to solve them. After all, you can only stay on top of your financial affairs when you know what financial threats are out there affecting businesses today.
This article discusses some of the significant financial and tax challenges businesses face and a few tested solutions.
1. Raising Sufficient Capital
Businesses require capital at various stages in their life. Startups need capital to buy assets and machinery, produce inventory, invest in marketing, and get the business off the ground. On the other hand, an established business may need capital to expand, enter a new market, or introduce a new product.
Finding the right source of capital is a problem for most businesses. Traditional bank loans tend to have strict eligibility criteria and the process to apply is often complicated and time-consuming. While there are many alternate sources of finance available, such as online lenders, these usually come with much higher interest rates.
When raising capital, the business should find the most appropriate finance source for its particular needs. For instance, for unexpected cash shortages, a short-term credit facility that is easy to pay back quickly, such as an overdraft facility, is the best option. For expansion, a long-term loan that matches the payback period of the investment is a suitable choice.
2. Complex Business Environments
Thanks to globalization, many businesses have been able to expand their operations across national borders with ease. A significant proportion of companies now sell their products in more than one country to limit their dependence on a single economy. Even if the business is only operating locally, it may have supplies or vendors abroad to take advantage of lower prices. While global outreach has its benefits, it means that the business must cater to each market’s unique requirements. It must also learn how to navigate an increasingly complex business environment.
Financial management for a multinational organization can be very challenging. The business has to consider the impact of fluctuating currency rates on its finances and comply with each country’s different tax laws and financial reporting regulations. Hiring a finance team with international financial management experience is one way to ensure sound management of finances in such organizations. These individuals bring a much broader range of financial skills to their employers. They possess the knowledge and expertise to meet the economic challenges faced by international organizations.
3. Tax Compliance
Taxation laws in any country are complicated, and they tend to change with time. In most cases, the average person does not have the technical knowledge to understand taxation laws or accurately calculate taxes. The result is that many businesses fail to ensure tax compliance. They either overpay or underpay their taxes.
One way to ensure tax compliance is by investing in the tax automation process for your business. There are various software solutions available today that can automate the calculation of taxes, allowing business owners to focus on value-adding tasks instead of trying to keep with every change in tax law. This software takes into account all the relevant laws applicable to the business when calculating its tax. It can reduce the time spent on calculating taxes considerably and increase tax computations’ accuracy, reducing the risk of high penalties.
4. Management Of Receivables
Many businesses run into serious cash flow problems due to slow-paying customers. A company may have no choice but to offer credit facilities to its customers to stay competitive. However, if customers are continually delaying their payments beyond the allowed credit period, the business can have trouble arranging the funds to pay its expenses on time. Without timely payment of bills and utilities, the company can incur late payment penalties or, in more severe cases, find it impossible to keep its operations afloat.
An effective receivables management system involves sending out invoices as soon as a sale is made and consistently following up on pending receivables. Ideally, businesses with high receivables should have an automated system that sends out invoices and email reminders autonomously at the end of each month. It can make the recovery of receivables significantly easier while saving several hours of employee time each month.
5. Lack Of Planning and Budgeting
Suppose a business operates without any financial planning, just hoping that it will make enough revenue to pay off its expenses every month. In that case, it is sure to end up in severe financial trouble sooner or later.
Regardless of the business’s size, it is essential to have a plan and a budget. It has two significant benefits. Firstly, it is a way to ensure the business is headed in the right direction to achieve its overall strategic objectives. Secondly, it helps the company keep a check and balance on its expenditure. At the end of each month, you can compare your actual expenses with the budget to ensure your expenses stays on track. With such a system in place, it is much easier to identify unnecessary spending and take corrective action on time.
When it comes to budgets, the business must firstly prepare a month-to-month budget for the coming 12 months. In addition to this, there should be a less-detailed, long-term plan of three to five years, on an annual or quarterly basis.
The Final Words
There is no doubt that financial management plays a significant role in the success or failure of any business, regardless of its size and the industry. Unless your business learns how to manage its money effectively, it cannot survive.
One way to ensure your business’s financial well-being is by investing in your business’s right financial tools and solutions. Doing so will make your finances management so much easier, setting your business off on the track to success.