Top Tips For Business Finances: Getting Ready For End Of Year

At this time of year small business owners usually review their business finances from the past 12 months.

If you are in the same boat, chances are you also need to plan for the year ahead. Doing so can help you navigate potential risks and factor in extra funding where needed. 

To ensure you don’t skip out on anything when checking your end-of-year finances, this article provides a checklist you can follow.

Check if You Have a Shortfall

A shortfall is a financial obligation or liability greater than the funds you have on hand. This can be a big concern that you want to address promptly — but it could potentially be covered with the help of a small business loan.

A shortfall may be temporary or long-term, depending on the cause. Either way, you’ll typically want to act on the cause of those shortfalls to protect your business from losing more funds.

Identify the Cause

Temporary shortfalls may happen due to circumstances that a business owner cannot predict or control.

For instance, equipment failure can negatively affect your output, which can cause lower revenues. Fixing or replacing the equipment might cut into your cash flow too.

Meanwhile, long-term shortfalls might mean poor financial management practices. In this case, you may need to reevaluate business operations to see why you’re experiencing shortfalls.

A business owner can technically still take out a business loan to cover long-term shortfalls. However, remember that you’ll need to repay that loan with interest.

If you don’t fix the cause of those shortfalls and end up with even less cash, your company might end up in a debt spiral.

Pinpoint Any Sources of Excessive Spending

Check your business expenses to see if there’s anything you can cut back on.

For instance, if you have contracts to get services and products from third parties, you can ask if they have loyalty rewards or bulk orders that can save you some extra cash.

Or, if you’re spending too much on marketing, you could try developing a social media marketing strategy, which could be cheaper than ads. You can also make an investment in SEO, which can result in good ROI in the long run.

Hiring an expert, such as a CPA, can further help you look for ways to cut back on spending based on your financial records. They can advise you as to whether you’ll need a business loan for extra funding and which finance option is right for you.

Identify Next Year’s Business Needs Early

Creating cash flow projections usually helps give you an idea of how your money will move within the business. This can show you the best time to take out small business loans to keep your business running.

Aside from borrowing money, you should make important decisions early on, like which finance option to get and whether to opt for alternative or traditional lenders.

Of course, you also need to check if you can afford a small business loan in the first place.

Consider Potential Tax Deductions and Concessions

Most business expenses are tax-deductible as long as they’re directly connected to earning your income. You can claim deductions if your business does any of these things:

• Has travel expenses
• Uses machinery, tools, and computers
• Operates at home
• Has set up a website
• Has motor vehicle expenses

You can also look for specific tax concessions depending on your aggregated turnover and other criteria.

Adjust Your Business Goals if Necessary

Your business plan is a blueprint for your whole business. It contains your business description, market analysis and strategy, marketing and sales plan, and more.

However, check your current and projected financial situation to see how far you can push your goals.

Let’s say you originally wanted to develop several new products. Do you have enough funds to create and market them?

If not, you can focus on just one or two new products. Or, you may look for new business finance options.

Business Finance Types

Whether you prefer investors or lenders, a company that needs extra funding can consider various business finance options that answer their needs.

What Are My Business Finance Options?

Business finance options can be mainly separated into two categories, each with its own group of advantages and disadvantages.

Debt Finance

As the name implies, debt financing is when you borrow money that you’ll pay back with interest. Examples of this type of business finance are:

• Bank loans – The application process for these can be rigorous because of strict criteria, such as a thorough business plan and putting up assets as collateral.
• Alternative loans – An alternative lender will typically have more lenient criteria and processes compared to banks. For one, these lenders may provide funding to businesses with less-than-perfect credit. They also tend to have faster processes, possibly depositing the loan in your business bank account within one business day.
• Business credit cards – Credit cards are usually good for only small-scale purchases since they have relatively high-interest rates and fees. As such, businesses may want to be careful not to overuse them to prevent entering a debt spiral.

Equity Finance

Equity finance requires business owners to exchange part ownership or stake for funding. You don’t need to borrow cash — instead, you get a partnership with a financer.

Examples of equity finance are:

• Venture capital – Venture capitalists tend to be very interested in the growth of your company. It’s good to have audits for security since these investors typically want to invest large amounts of money with the hope of seeing a large return too.
• Crowdfunding – The effectiveness of this type of business financing heavily relies on how successful your campaigns are.

Requirements for Business Finance Applications

You normally need similar requirements regardless of whether you’re turning to a lender or investor for business finance. Below are some documents you’ll typically need to provide:

• Annual financial statements
• Latest full tax report
• Assets for security
• Cash flow projections
• Interim or recent management financials
• BAS statements and cash flow statements
• Business contract of sale

Double-check with the lender you’re applying to since different lenders might have varying requirements depending on the business loan you want.

They may also differ depending on the finance option you choose.

Conclusion

Business finance strategies can help you manage your business financing needs.

Examples are to check for shortfalls and pinpoint where your business needs to cut back spending, such as possibly not renewing a contract with a third party involved in giving you a certain service.

A small business loan could also help boost the growth of your businesses. Owners can choose between debt finance or equity finance to receive funding.

We hope this article has helped you understand business finance more. At Lumi we can further help you find a loan, if that’s what’s right for your business.