No business owner or entrepreneur likes to be financially troubled. However, it is a possible occurrence if the finances are not taken care of properly. According to a study, around 42 percent of businesses reported that handling their business finances is an extremely challenging task. In order to know why this is so, we first have to understand the nitty-gritty of small business financial management. To put it simply, financial management is the process of handling an organization’s finances via income goal setting, budgeting, income and expense tracking, inventory management, and much more.
To keep your small business running smoothly and efficiently, you require money to cover daily business expenses. Failing to spend this money wisely can lead to late payments, running out of money, or not meeting the goals planned for the business’ success. If you stay on top of your finances, you’ll be able to avoid going into debt, and you’ll have an ample amount of money to invest in your small business’s growth. Put the tips listed below into use if you want to learn how to manage your small business’s finances properly and more efficiently!
- Track Your Spending
Do you know how much cash you spend daily, weekly, or monthly? If you don’t track your spending, you might be compiling unwanted bills. Furthermore, it can also lead to misuse of funds or overspending. Most business owners have multiple bank accounts – credit card accounts, savings accounts, or checking accounts. Ensure that you know how much money you have been withdrawing from these accounts. Get your bank statements every week for every type of account you own so that you can monitor your spending easily.
When tracking your expenditures, don’t forget about any cheques. Furthermore, you can easily manage your finances by keeping track of your accounting books. Installing a record-keeping software or hiring an accountant who holds a relevant degree, like an online macc one, will ensure that no transaction goes undocumented.
- Monitor Your Payment Deadlines
If you tend to forget about your bills and when they are due, you can end up with serious financial trouble. On top of that, not knowing the due dates of your bills can result in late payment charges, fines, lower credit scores, and damage to your business’ progress. If you wish to avoid the hassle of paying such fines and late fees, you have to keep efficient track of your payments. Setting reminders on your mobile phone’s calendar app is an easy way to stay on top of payment deadlines.
- Keep Personal And Business Accounts Separate
Do you have the same bank account for business and personal use? Doing such a thing can cause confusion in terms of managing relative expenditures. Mixing both accounts can lead to missed growth opportunities, disorganized records, overspending, and the likes. Let’s suppose you keep your personal and business funds in a single account. In that case, you might end up dipping into your business funds and spending money on your personal expenses and vice versa.
- Develop A Budget
Dedicating your time and effort to developing and tracking a small business budget can make financial management a lot less complicated. Through budgeting, you can set revenue and expense goals. The reason for creating a budget is to lay out expenses needed to run your business properly. When you know how much money you have and the amount you can spend on your business, you will manage your spending habits easily and efficiently.
A budget also helps in forecasting your business’s expected revenue. If you see that the revenue is lower than expected, cut out unnecessary expenses to increase your income.
- Keep A Money Reserve
Practicing effective money management will drastically improve money flow. However, sometimes, emergencies can occur at the most inopportune moments, and you might not have any money left for what comes during such a time of financial strain. Having a small money reserve will help the business through such times. Consider opening up a savings account. Deposit a manageable amount into it every week, and after a year, you’ll have a significant amount ready in reserve for when financial calamities strike.
- Manage Your Inventory Properly
Does your business order more inventory than it can handle? Or, is it running out of products that are a best-seller, forcing customers to go to your competitors instead? Improving your inventory management will help you avoid spending too much or not enough on your inventory. Constantly monitor the amount of inventory your business has; this will help in avoiding getting stuck in a place where you neither have too much nor enough. Note down every inventory sale and purchase in your records to manage it more efficiently.
Regular monitoring is the key to successfully managing your small business finances. It is crucial to know where to look to measure your financial health. for instance, turnover is an easy performance metric to track. Keep the profit and your vision in your sight; that will keep you steady on the path to success.