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This is how you can build financial discipline in your SME culture

Financial discipline is extremely crucial for small and mid-scale businesses to capitalize on emerging market opportunities and turn profitable. The company’s accounts books should present a detailed financial picture. Without strict financial discipline, a company may overspend, which can lead to disastrous consequences for its long-term stability.

To maintain financial stability, SMEs must adopt financial discipline as an essential practice. The following are some effective ways through which you can bring in financial discipline to your business:

 

Risk management and control

Risk management should begin well before a financial emergency arises. Strong, overarching financial controls need to be established and closely integrated with the company’s compliance obligations.

Changes such as Companies Act, 2017 and GST regulations need to be carefully considered while maintaining company’s accounts to avoid defaulting and inviting penalties or other legal consequences.

 

Differentiate business and personal expenses

Considering that most small businesses are self-funded, mixing business and personal expenses can lead to confusion and complicate your tax planning. For maintaining cash-flow and simplify accounting, set up dedicated business accounts.

Without clear differentiation between your personal and business accounts, knowing the exact state of the financial status of your business could become difficult, resulting in suboptimal financial decisions.

 

Leverage customizable accounting tools

Managing a SME is easier said than done. If you’ve just started your business, you may find managing accounts books to be a difficult task. It is advisable to hire the services of a professional accountant to ensure your business accounts are managed properly.

A number of customizable accounting software solutions exist that make manual double entry book-keeping redundant. For a small fee, these allow you to manage invoices, track income and expenses, and give you insights based on your history of spending.

 

Vendor Management

Periodically review your contracts with suppliers and vendors to ensure that you get their services at competitive rates. As competition grows, you can invite bids from a number of suppliers and evaluate them. Based on the responses, choose a vendor that offers the best value for money.

Online marketplaces and aggregators can help you identify multiple suppliers in your niche, helping you reduce your inventory overheads.

 

Manage your debts effectively

One of the crucial aspects of financial discipline is debt management. Easy financing options help you to take advantage of new business opportunities with calculated risks. Availing credit from banks and other financial institutions can help you hedge against business uncertainties and create win-win outcomes for both, yourself and your customers.

Borrow funds keeping your short-term and long-term business goals in mind. Once you know your requirements, opt for loans that have flexible repayment terms including low interest rates, extended tenures and easy foreclosure.

Reliance Money, as a financial institution can help you with SME Loans, which offers flexible repayment options along with competitive interest rates. You can use these funds to expand your production, procure inventory, meet staff payrolls, and clear your pending dues to the suppliers.