An essential factor in sustaining a small business is money management. An entrepreneur needs to educate oneself in budgeting, tracking income and expenses, investing, and setting financial goals.
Small businesses usually function with shoe-string budgets. So, it is necessary to have a strong grasp on the finances from the very beginning. If you are currently failing to manage small business finances or want to educate yourself on money management for business, we have a guide that can help you.
Steps to Manage Finances for Small Businesses
The following steps will help you get your small business finances in order and make it sustainable:
1. Keep Personal and Professional Finances Separate
People always talk about work-life balance and find ways to tackle personal and professional relationships. But why do they not do the same for personal and professional money management?
Mixing business finance goals with personal finance goals can confuse you. While there is convenience in using the same bank account for everything, it makes money management complicated in the long run.
Your personal and business finances might co-depend on each other during a crisis. But to avoid the consequences of poor money management, you must separate your bank and credit card accounts. Keeping separate accounts will help you track your finances better and get your taxes done with ease. It will relieve you from confusion and help you analyze where to put your money.
2. Create a Small Budget for Your Business
Creating a budget does not help you earn more profits, but it keeps you covered during losses. Most businesses fail because owners skip budgeting and saving from the beginning. Budgeting is the foremost step towards meeting financial goals in a business. It can help you build a strong foundation and make your business sustainable.
The process of budgeting makes business owners thoughtful about spending. It helps you analyze your revenue and allows you to curtail your costs and save more. A rough budget helps you evaluate the actual figures and compare them to estimates. Budgeting is a continuous process that needs to be updated regularly to prevent debt, late payments, and other financial problems. Creating budget plans will help you manage money efficiently and avoid resorting to loans.
3. Monitor Expenses
Do you have an account of the amount of business money you spend per week or month? Does your budget include the maximum amount of expenditure you can allow, or do you go beyond it unconsciously?
Not monitoring your spending can rack up bills. You might end up finding yourself with outstanding payments that you didn’t need to make. To avoid overspending and misusing funds, you must monitor your expenses.
Most business owners have different bank accounts of current, savings, and credit. It is important to note what you withdraw and spend from each of them and be on top of your finances. It is also important to note that every expenditure doesn’t need cards and checks. Cash payments can be the most vulnerable form of spending as you never know where it goes. From having an extra bite during lunch or buying stationery products, small expenses can accumulate and become a sizable amount at month-end.
Monitoring spending includes these tiny expenses as well. It would help if you kept a note of these to not end up with bills you didn’t need to pay. Remember, your petty cash book is also important as it is a part of the entire budget you made for yourself.
4. Following a Healthy Billing Plan
Every business has at least one client that does not pay on time. Do you want to be that client to another company? Of course not! It will not only affect your reputation but also reflect poor financial management.
Managing cash flow in a small business reflects healthy business operations. You have to pay your employees and clients on time to retain their trust and reliability. But to pay people on time, you also need to ensure getting paid on time.
Creating a systematic way to bill your clients can prevent cash flow problems. To do this, you can:
- Create a net-30 period to ensure getting money by the last day of every month
- Take advanced payments to cover a certain portion of bills you need to payout
- Make strict contracts that include charging a fee for late payments
- Suggest giving discounts for getting paid before time
The above tips can help you get paid on time without sending regular reminders.
5. Consider Employee Expenditure
Businesses have both fixed and variable costs. While fixed expenses like rent are easy to budget, variable costs like employee payments are challenging. When looking towards tracking business spending, you have to focus majorly on labor costs. It is usually the biggest expense a business has to cover and also the most important.
A business depends on skilled employees, and satisfying their requirements is necessary. Even if you have staff on payroll instead of full-timers, tracking the expenses will help you manage business finances better.
It also allows you to see if you can give them more perks and prevent overdoing the same. Keeping track of employee expenses lets you have peace of mind and ensures proper business operations.
6. Seek Professional Help
Remaining frugal during the initial months of business is smart. You might be tempted to do budgeting on your own to save some more money. But it is wiser to seek professional help if you fail to manage alone. You might need to focus on other aspects at work and not have the time to manage finances alone. Even in this case, a bookkeeper can simplify your job and help you save your money.
You can hire an account for their intimate knowledge in financial accounting. An accountant will not only help you curb expenses but also keep your taxes in order. The skilled accountant will know the right deductions and keep you free of penalties.
Accountants can help you manage a clean record and find solutions to reduce your bills. They can easily deduct unnecessary expenses and suggest changes for growing financial stability. Lastly, accountants can also advise making the right investments to increase your net worth.
Mastering the skill of financial business management will help you find ways to multiply your income. It will force you to stick to a budget, cut down on unnecessary expenses, and make the right investments. It will help you build a sustainable business that can survive during difficult times. Thus, this can prevent filing for dissolution or bankruptcy.