If you are a small business owner, you probably know that the key to your success is not just driven by the number of customer transactions, but also the way you manage your money.
Being a small business owner is all about following your dreams and calling your own shots. But it’s also about managing your money responsibly and keeping a tight grip on your finances.
Business owners won’t like to be strapped for cash, especially during an emergency, but sometimes there can be instances where finances are mismanaged. Almost 42% of small business owners have reported that handling steady and consistent cash flow can be quite challenging. An effective yet simple money management strategy can really come in handy.
Any seasoned business owner would tell youthat the first few years for any new business are crucial to its long-term success, with many challenges to overcome and lessons to be learned.
One such problem is the problem of cash flow problem and mismanaged finances. Some companies fail to plan properly, some set their sights too high or low, some don’t keep track of costs, some fail to chase payment. And we all know that failing to plan ultimately leads to planning to fail.
“Failing to plan is planning to fail.” — Benjamin Franklin
In order to not only survive but thrive as well, it’s important that you learn the best ways to cut down on your costs while still providing the same level of quality.
All of this may sound complicated and overwhelming, but if you stick around till the end, you will with some of the best financial best practices to implement.
Money management involves handling business finances, and it involves setting goals, having a practical budget, tracking your expenses and income, and making smart investment decisions. When business owners have smart financial plans and opt in for accounting software, they can avoid negative cash flow periods and always ensure that the business is on track to make a profit.
As a business owner, if you fail to manage your money wisely, then it can lead to issues like running out of money, not having enough savings, and making late payments.
Top Money Management Suggestions:
If you want the business to operate smoothly, then you must have enough money to cover all the necessary expenses.
So without further ado, let’s get started:
Many small business owners are doomed to fail because they make the skip budgeting. One of the biggest known reason for is the fact that it’s difficult to estimate what you’ll spend when you’re new in business and don’t have prior period numbers to use as a starting point.
But make no mistake, creating a budget is the first place to step in managing your business finances.
A budget is the blueprint using which a business owner can create a beautiful building with a strong foundation.
But what happens if your numbers aren’t spot on? Don’t sweat it! It’s perfectly fine since even established businesses see variances.
The process of creating a budget will make you more thoughtful about how you’re spending your revenues and what you can do to improve.
Once you’ve created a rough budget, evaluate how your actual numbers compare to your budget estimates on a timely basis. Over the course of time, your budgets will be more accurate and you will be able to efficiently manage your money.
It’s important that you’re aware of all the bills that are due, such as loan payments, accounts payables, credit card payments, and so on; once you’re aware of the deadlines, you will be aware if you have enough money to pay off bills. If you fail to pay your bills on time or not know when they are due, you can get late fees, added interest, business credit card score is lowered, and vendor relationships can go sour.
To avoid missing any crucial deadlines, try setting reminders and be on top of your deadlines. You can start by recording the payments along with their deadlines; this way, you won’t fall behind. Create a schedule online so that you have a consistent payment reminder.
Many business owners lose track of their expenses after a week. If you don’t keep track of your spending habits, then the bills will pile up, and this is a situation that you will want to avoid; furthermore, failing to track your spending habits will lead to misuse of funds and overspending.
It’s easy to make small expenses, but at the end of the month these expenses do add up; if you don’t keep an eye on these expenses they will expand into a bill that you are not prepared to pay for. If you have decided to track your expenses, then you will have to factor in the uncashed checks. This is because sometimes the recipient forgets to cash the check, immediately, and if you don’t monitor the spending, you will end up with overdraft fees and an overdrawn account.
So, take up accounting books or simple online accounting tools to record every transaction.
Ensure that your business accounts are separate from your personal ones; this method is crucial for effective money management. Also, business bank statement can be useful if you want to track the business’s profit margin, reconcile the books, and keep track of your spending habits.
When you mix your personal and business accounts, it can result in it disorganized records that can lead to overspending, not meeting bill deadlines, and missing growth opportunities. Tracking expenses and business fund deposits can be difficult; therefore, it’s always a good idea to keep the two accounts separate. This is where accounting software can help share the load and save headache.
There are two money making rules that you will have to live by if you want to maximize your profit margins- decrease your expenses and increase your income. If you find managing business funds challenging, you’ll have to look for ways to cut costs and increase revenues. If you want to cut costs, then you will have to start by looking at your expenses and eliminate any unnecessary spending, you can cut costs by shopping around for new vendors. Increase revenue by offering discounts, promoting products, adding new products for sale, and creating loyalty programs.
You can read up on a million finance management tips, but they are all futile if you don’t apply them to your business; when you apply money management tips to your finances, then you can improve your cash flow as well. However, unexpected situations can occur, and you will need to cover it with your emergency expenses. Therefore, it’s crucial that business owners have a cash reserve that helps them manage money whenever there is an emergency. You can start managing a cash reserve by starting a business savings account or investing in a money management software. Ensure that you make regular deposits in the cash reserve.
If you are running or trying to grow a small business, there are two things that you need to know about financial management and how to manage money – the first one is to pay yourself and the second is to have more money that can be reinvested in the business to keep it going.
Your profits and expense allocations can be used to invest in the development and marketing of your business. You profit first personal money management system will ensure that you have a constantly building profit account with which you can reinvest in the business, save it or use it for yourself.
The primary idea behind this money management technique is to carefully utilise the money and use it to grow the business, put some away for the future and allocate some to emergency funds.
With new businesses, there’s usually one person or a team of few people who take care of everything. Be it marketing and sales, accounting and product design, and shipping or customer service, each member of the small team wears multiple hats and carries out the tasks. But as the business grows, you must be aware of which tasks you excel at and where you don’t.
Maybe, for example, you are very good at understanding thousands of pages of tax code and spend twelve hours to prepare your tax return. But the point to understand here is the opportunity cost of the time spent here is not worth it. You can rather hire someone else to file a tax return for you for a fraction of the time and money you have invested here.
Once you have enough revenue-producing work to focus on and keep you busy for the week, you can start to outsource some of your tasks. For instance, you can hire someone to keep your books in order or handle email and other routine tasks. This will keep you free enough to direct your focus on tasks in which you are good at.
When you’re getting your business started, keep track of all income and expenses from day one — even if most of your numbers are zero.
It’s easy to let managing your business finances fall behind when you’re focused on the million other things you need to do to get your business off the ground. But staying on top of your accounting is incredibly important.
You’ll be thankful you took the time to set up your finances and get organized at tax time and when your business grows to the point you need to hand the daily accounting tasks off to someone else.
How to put it into action you ask? It’s really simple — invest in a cloud-based accounting software.
While small business owners in your community could have started out with a simple spreadsheet for tracking income and expenses, online accounting software would end up paying for itself when you consider the time that is saved from automating invoices, filing tax returns without hassles and staying top of the finances.
Ambition and enthusiasm are important characteristics of business owners and managers. But so is the ability to make rational financial decisions based on the facts.
One of the reasons why so many businesses fail to thrive is the fact that their owners give in to the enthusiasm but fail to create a proper short-term and long-term goal that is realistic and achievable.
In fact, the short-term goals for every small business owner should be SMART:
This means using the budgeting data we mentioned above to set financial goals specific to the business and its needs.
Once a goal is in place, you as a business owner would be able to easily identify wasteful spending and conclusively plan for ways to trim the costs to increase your profit margins.
It’s important to keep a close eye on your business expenditure. An online accounting software will automatically quickly draw up useful reports, such as:
These reports give an insight into the financial health of a business empowering business owners to create effective buying, selling and collection strategy.
(If you want to read more about financial reporting, its importance and how you can make the best out of them, you can read it here!)
Business might be about creating great products and services. But if you can’t pay your bills, you could be out of business.
Failing to understand your numbers is the number one reason for a business to go bankrupt. So it’s important that you manage your money wisely, and build a healthy business that benefits your customers, employees, and more importantly ‘You’.
Are you a business owner using one of these money management tactics? If so, comment below and let us know.