Finance Management of Small Business

Finance Management of Small Business

Managing finances in a business is among the few important things that need to be considered when starting and carrying out a business. It is all about efficiently and effectively utilizing available funds in order to achieve the objectives of the business. Financial management is aimed at planning, observing, organizing and managing the monetary resources of a business.

Small business finance management strategies

Small business finance management is mostly concerned with procurement, allocation and control of financial resources so that a regular and adequate supply of funds is maintained to run a business. Once the funds are in hand, they should be utilized in maximum possible ways at low costs and should be invested intelligently in safe ventures. A few tips that can help you efficiently use your funds while running a small business are:

In the initial years of managing a small business, you need to estimate how much money you need for a decent living and pull out that money from your business income. Now invest the remaining money back into your business for its growth.

Early wins in the form of high profits may urge you to spend it on leisure holidaying or improve your housing status. You need to be firm and defend yourself against such ideas and wait till your business gets a little more established.

The main expense in a business is covering the payroll of your staff. It is advisable not to hire new employees unless you absolutely need them. When things get busy and a lot of work pressure builds up, you may get tempted to hire more people. Try and stretch the existing staff members to their full potential to get through the workload and hire only if necessary.

Try and save up money on applying for loans and procuring inventory. Taking up loans from banks is a common practice in the business world, but it carries an extra cost of its own in the form of interest you pay while returning. Reducing this extra cost can help you add up and save more money in the long run. This can be done by dividing the total money you need as loan and borrowing it in parts over a period of time. This reduces the overall amount of interest you pay back to the bank. Borrowing the entire amount at once will result in you paying interest for the money you are not going to use till later time.

Keep the money separate for paying the taxes and avoid mixing it with other funds. Paying taxes is of utmost importance and since that money is meant to be given away, it should not be kept or used for other purposes.

Bargain the terms of the agreement with the outside contractors and vendors like delivery services, electrician etc., such that you get a grace period in paying your bills. This grace period can be used to manage your funds and prioritize your other bills more efficiently.

Small business finance management can help you cleverly grow a successful business over time.

Money Laundering and Major Risks

Money Laundering and Major Risks

The concept of money laundering is very important to be understood for those working in the financial sector. It is a process by which dirty money is converted into clean money. The sources of the money in actual are criminal and the money is invested in a way that makes it look like clean money and hide the identity of the criminal part of the money earned.

While executing the financial transactions and establishing relationship with the new customers or maintaining existing customers the duty of adopting adequate measures lie on every one who is a part of the organization. The identification of such element in the beginning is easy to deal with instead realizing and encountering such situations later on in the transaction stage. The central bank in any country provides complete guides to AML and CFT to combat such activities. These polices when adopted and exercised by banks religiously provide enough security to the banks to deter such situations.

However if a bank encounters any such situation it encounters the following types of consequences:

Reputational risk

The major risk a bank faces when it finds itself caught in any sort of money laundering is reputational risk. The reputation of the bank goes negative and in turn it might face huge withdrawals. There might me loss of profitable business and many other liquidity issues. The quantum of this risk might cause a bank to confront various investigations costs and penalties. The biggest hurdle a bank has to undergo is the situation of mistrust by the customers which is devastating.

Operational risk

It is another one of the major consequences of money laundering which a financial institution faces. It is a kind of risk which lies in the internal procedures, people and system after they breakdown. It is a risk which is included in the operations of the business. Thus it creates disturbance in the smooth functioning of the organization.

Legal risk

Legal risks are also posed to the organizations due to the uncertainties in the legal actions which might come up for the organization to deal with them. These might include certain charges on the bank, the dealing between the money launderer and the bank etc.

Concentration Risk

This type of risks is majorly pertains to the banking industry and defines the probability to which any bank has lent money to a particular group. The increased lending without proper identification or the realization after encountering money laundering act may cause a bank to suffer loan losses which in turns deteriorate banks standing in the industry.

Opportunity Cost

One of the major consequences a bank faces is the increase in opportunity cost. It is increased in a way that the management finds itself spending its time in managing the damage control which the act of money laundering has caused instead of utilizing that time for other better perspective.

Thus money laundering brings many adverse consequences to the organization due to the risks it presents. It increases the probability of major risks and the opportunity cost of the bank and ultimately causes the bank to face losses.

The Various Types of Financial Tips for Startup Companies

The Various Types of Financial Tips for Startup Companies

Getting funds is considered to be one of the challenging problems that a business owner has to face while starting a business. Most startup companies require a small amount of money for its initial operation and it may happen that may not have the necessary funds in their hands that they need to launch their businesses. However, lack of money does not mean that you have to compromise on your dream. Whether you wish to follow the conventional route or you wish to try out an innovative process, you should follow a few essential tips to get money for your startup company.

Secure loans offered by the Small Business Administration

The business owners can secure the loans offered by the Small Business Administration to meet the financial requirements necessary to begin their business activities. Two popular categories of loans are 7 (A) programs and 504 programs. The 7 (A) programs can be acquired for buying machines as well as refinancing the current debts. However 504 programs are used for different activities such as construction, renovation as well as purchase of properties or devices.

The SBA plays the role of a guarantor and it allows you to acquire necessary loans, especially when you are unable to possess properties for mortgage purposes. Plus, these funds can be acquired quickly and easily. This quick loan processing is important for the business owners who depend on these funds for all sorts of business requirements.

The borrowers who have poor credit histories such as bankruptcy, late payment, insolvency can secure these funds. In fact, the funds offered by Small Business Administration help them to improve their credit scores to a great extent.

Sell your products beforehand

Selling the existing products is an effective way of increasing financial options that are necessary for starting the business. There are a few companies that have shown the capacity of selling their current products prior to the scheduled time and raising a huge amount of money for their business activities. This type of business methodology allows them to draw traffic to your business website, increase the number of followers on social networking sites and even offer valuable discounts to their customers from time to time.

Make use of the credit card payment option

If you wish to launch a startup company and you do not have a huge amount of money in your hand, then you can use your credit card and you can make payment without any sort of difficulty.

Take help from friends as well as family members

If you find a friend who is willing to spend some amount of money, then you can consider it to be a good way to get necessary fund for your business. Borrowing money from a friend or from a relative is considered to be an alternative financing option for you. You can avoid all types of hassles that are associated with the conventional loan application process. If you approach your closed relatives or friends to offer financial support for your business or if you communicate them about the progress of your business, you have better opportunity to maintain good relationship and to run your business successfully.

There Are No Free Lunches

There Are No Free Lunches

Our society has changed so much. In my day, it was a given; if you wanted something, you worked for it. If it costs more than you made, you saved up for it. You were not entitled to anything. If you were part of a family, you were expected to do chores.

And then there was the issue of an allowance. Are children entitled to an allowance if they don’t do anything to earn it?? I think children need to learn that if they want to be part of a family, certain things are expected of them that have nothing to do with getting paid.

It is a parent’s right to expect each member of the family to do some chores. Now, I’m not talking about the Cinderella Syndrome; I’m talking about things like making your bed every day, doing some of the housework, clearing your dishes from the table after you’ve eaten, keeping your room clean, etc.

The kind of chores that tell a child that he is a member of a family and he has a certain responsibility to that family. It gives a child a feeling of belonging while developing a good work ethic.

But, above and beyond the usual chores that are expected of a family member, there is a compelling reason for giving a child an allowance for the extra chores that he does. In addition to giving him the feeling that he is a valued member of the family, it also teaches him some fundamental lessons about budgeting and prioritizing. He learns that he can’t have fifteen #1 priorities; he can only have one #1 priority. This, in turn, teaches him how to make good decisions.

It also teaches him that he is not entitled to anything. He learns that there is no such thing as a free lunch and if he wants to be successful at home and at work, you have to give something of value if you want something of value.

An allowance also teaches a child to distinguish the difference between want and need, as well as teaching him that if he wants something that isn’t covered by his allowance, he has to save up for it.

A young child can hone his entrepreneurial skills by finding projects that he can charge his parents or his neighbors for to fund the things that his allowance doesn’t cover.

As a child gets older, his wants will greatly exceed his needs and that, if anything, will be his prime motivation to learn the basic rules of finance and budgeting.

Whatever a child learns at home about handling money will be the building blocks or the stumbling blocks for how he deals with his finances as an adult.

Different Priorities

Different Priorities

So many people today have different priorities than they did a couple of generations ago. In the old days, when you had bills to pay, those were your first priority. You saved up for your vacations; they were separate and they didn’t come out of your regular paycheck. Nowadays, I’m seeing so many people who, when they see their bills piling up and they don’t have the money to pay them, they just close their eyes and ignore them,

I once heard a man say that although he and his wife were having enormous money problems he planned on using his tax refund to take his family on a vacation.

When I asked him why he didn’t use the money to pay down some of his debts he told me that bills will always be part of his life but it was more important for their family to remember having some fun times together.

I wish I could say that I only know one person who, whenever her debts are insurmountable, she goes shopping. But, the truth is that I know many people who fall into this category.

It’s as if they receive a subliminal message that tells them to rush out and buy a lot of things that they don’t need and can never repay. The sad part is that when they get their merchandise home, most of them don’t even get excited about the things they bought.

For many others it’s an addiction and it has the same draw as narcotics. It’s more than money burning a hole in their pocket. They can’t seem to help themselves; there is a compulsion to spend, spend, spend. It’s the ultimate shopaholic.

Many of these shopaholics have brand new clothing in their closets with the price tags still hanging from them. For them, it’s not about owning the clothing and planning on wearing them; it’s about the need to spend money. On anything.

Then there are the people who close their eyes to the bills and go out and party so they don’t get depressed. It’s almost as if they are expecting someone to sprinkle fairy dust over them and, in a magical moment, all their bills will be paid while they’re out partying.

Maybe some of this lack of accountability springs from the uncertain times we’re all facing with a collapsing economy, a shortage of jobs, and a world gone crazy. And maybe it’s just a case of more people having entitlement issues than ever before.