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Hey fellow entrepreneur! Starting a small business is truly an exhilarating journey. You’re pouring your passion, ingenuity, and hard work into transforming a brilliant idea into a livelihood. It’s a thrilling ride, but beneath all that excitement and innovation lies a fundamental truth: money matters. Having a strong grasp of small business financial fundamentals isn’t just good practice; it’s the difference between seeing your dream flourish and becoming another cautionary tale. If you’ve recently launched your venture, or if that launch date is circled on your calendar, investing a little time in financial knowledge now will pay significant dividends down the line. We’ve broken down the core concepts you need to master your business finance from day one.
Understanding cash flow and core financial health
Cash flow is a fundamental concept to understand. You’ll need to be able to pay your staff, suppliers, and lenders – and that means having cash available. If all of the money you bring in is invested in assets, like machinery, then you won’t have the liquidity necessary to operate.
Recent reports suggest that almost half of the UK’s SMEs suffer from cash flow problems, to the extent that around one in ten are at risk of closing. In some cases, getting things on track means being able to devise a budget, and looking at both regular and irregular spending. In others, you may turn to to self-employed loans, and other kinds of specialist finance.
Funding options and borrowing wisely
Sometimes, a little external help can be a game-changer. Small businesses can borrow their way out of cash-flow pinches, but it’s crucial to do so wisely. You might encounter loans secured against your business’s unpaid invoices (known as invoice finance), or loans secured against physical assets like your equipment and premises. Just bear in mind that with asset-secured loans, your equipment – and even your premises – could be at risk if you can’t repay.
Beyond traditional loans, don’t overlook the various grants offered by the government. These often include start-up, innovation, regional, and sector-specific grants. Each comes with its own set of eligibility criteria, and some might even require you, the entrepreneur, to contribute a portion of the funding yourself. Do your homework; free money is out there if you qualify!
Working capital, late payments and regulatory changes
One major contributor to cash flow problems is the phenomenon of late payments. If you aren’t being paid, then the pool of available cash will shrink. Having the right procedures in place, and creating the right incentives for your debtors, can be very helpful.
There are also regulatory changes to consider when it comes to filing. Smaller businesses, however, may end up exempted from many of these rules.
Risk management, growth planning and financial strategy
Your financial strategy should form a core part of your overall business plan. This means that it should inform the way that you borrow, budget, and assess risk. A good financial strategy might help you to weather storms created by government policy, interest rate changes, and unexpected shifts in inflation. Getting it right means creating a holistic strategy, doing it early on, and subjecting that strategy to regular review. That way, you can assess whether your financial measures are working as intended, and whether they’re fit for the economic environment in which you’re currently operating.
Lynn Leblanc 
Victoria Jain