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10 Money Management Tips For Small Business
There is more to running a business than simply implementing ideas, innovation, or sales. Proper financial management plays a pivotal role in the success of any business. This is one of the reasons why you should go the extra mile to learn and understand how to manage your finances and security issues surrounding the same. Outlined below are some of the basic but crucial money management tips and strategies every business owner should know.
1. Don’t Underestimate Overhead Expenses
Understanding your expenses and being open/honest about your overheads is the first step to learning how to manage your finances properly. Use FairFigure for an overall view of your finances. Most entrepreneurs only focus on the sales made and hardly concentrate on their expenditure, only to realize their expenditure is higher than what they are making. That said, take into account every business expense (electricity bills, printing charges, shipping, etc.) to see what can be done to cut down on the same or stay within the budget.
2. Create A Cashflow Budget
With a rough idea of your expenses, the next step would be to create a cash flow budget to keep your finances aligned. Start by creating a line item for every expense and your savings accounts. Do not forget to include employee compensation when drafting the budget. Make sure the budget is within what the business can make, and allow for adjustments where possible for improved efficiency. Accounting for every penny the company generates or receives will put you in a better place to stay on the right track for success.
3. Keep A Strict Tracking System
This is especially important if you run the business from a single bank account. Maintaining a strict tracking system can help keep you within your limits and avoid diving too deep into debt. Some experts, however, recommend creating separate accounts for expenses (office software, utilities, etc.) just to be safe. Nevertheless, there are plenty of online tracking systems you can use to manage and monitor your expenses without necessarily needing to create multiple accounts. You can also use these tracking systems if dealing with a cash-based budget as well. One of the advantages of dealing with cash is you won’t be tempted to use a debit or credit card.
4. Keep All Financial Documents and Receipts Safe
Keep a record of every financial expense however small it seems. All costs ranging from a simple print job locally or a business trip overseas need to be well documented to avoid writing them off when filing your tax returns. Saving all financial documents can thus see you save lots of money in the long run. With this in mind, consider creating two files; one electronic and another physical. An expense management software can also help make your work much easier here. Train your employees to save every receipt they get in physical form (in a folder) and digitally (scanned). Doing so should make your accountant’s job much easier and more manageable.
5. Open A Separate Business Bank Account
Although most people run their startups off their personal bank accounts, this isn’t a wise idea and is not recommended. It would help if you separated your personal and business expenses for many reasons. For starters having separate accounts will make tax accounting easier and stress-free. If the business is already registered as a Limited Company, it is a separate entity and should have an account of its own. You, however, might not need a business bank account if a sole trader. Running the business from a personal account could save you some money in fees. You’d have to be very organized to be able to keep track of or separate business and personal expenses.
6. Hire An Accountant or Financial Manager
While it may seem simple, very few people can manage their finances efficiently without making mistakes. Unless you have a form of accounting experience and expertise, you are better off with an accountant by your side. You can either hire an in-house accountant or outsource the service at a lower rate. This depends on your specific needs and if the business can pay an in-house accountant.
7. Consider Automated Invoice Processing
With the ability to transfer funds with just the touch of a button from anywhere, the risk of falling for fraudulent invoices and banking information is relatively high in the business arena. Many business owners have lost tons of money this way, a reason you need to have a security protocol in place when transferring funds. One of the best ways to avoid such fraudulent activities is to use automated invoice processing. The system will only release funds to pre-authorized addresses and never a new or strange-looking invoice.
Make a point of cross-referencing banking details before transferring big chunks of money to clients or suppliers. You also need to be wary of subscribing to services from an overseas company. Some of these companies will automatically deduct the said amount each month unless stopped. Consider going for a one-off payment for such subscriptions rather than automated renewals.
8. Create Multiple Income Streams
While sticking to the original business idea is good, you stand a better chance of growing and succeeding when you diversify. One way to do this would be to create several streams to generate income using the same company. A good example of this is a company that deals with candle sales alone. Selling complementary items alongside the candles or hosting classes to train people how to make candles can also help generate some more income.
9. Keep A Reliable Business Savings Account
Emergencies happen when we least expect them. Businesses, like individuals, can suffer an emergency too. This can be in the form of a broken appliance, equipment, or an accident. The business needs to be able to take care of the emergency without you, the owner, having to use your personal accounts. Creating and maintaining reliable savings account for the business is one of the right ways to do this. The savings account will also help keep the business afloat when there’s a slowdown.
10. Send Out Invoices, Fast
The key to success in business is to show no leniency to anyone unless absolutely necessary. This rule comes first when billing customers and sending out invoices. Always send out invoices as soon as deliveries have been made. Waiting for a day or two to send the invoice will only delay cash flow, and could lead to non-payment. Your business’ lifeline is with the clients paying up what is due. Don’t apologize for sending them an invoice or requesting payment.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes