10 financial management tips for small businesses

Running a business is more than just implementing ideas, innovations, or sales. Good financial management plays a central role in the success of any business. This is one of the reasons why you should make an extra effort to learn and understand how to manage your finances and the security issues surrounding them. Below are some of the basic yet crucial money management tips and strategies that every business owner should know.

1. Don’t underestimate overhead

Understanding your expenses and being open/honest about your overhead is the first step in learning how to properly manage your finances. Use FairFigure to get an overview of your finances. Most entrepreneurs only focus on the sales made and barely focus on their expenses, only to find that their expenses are more than they make. That said, consider all business expenses (electric bills, printing costs, shipping, etc.) to see what can be done to reduce them or stay within budget.

2. Create a cash budget

With a rough idea of ​​your expenses, the next step would be to create a cash budget to keep your finances aligned. Start by creating a line item for each expense and your savings accounts. Remember to include employee compensation when writing the budget. Make sure the budget is within what the business can do and allow for adjustments where possible to improve efficiency. Accounting for every penny the business generates or receives will put you in a better position to stay on track for success.

3. Keep a strict tracking system

This is especially important if you run the business from just one bank account. Maintaining a strict tracking system can help you stay within your limits and avoid getting too deeply into debt. However, some experts recommend creating separate accounts for expenses (office software, utilities, etc.) for security. Nevertheless, there are many online tracking systems you can use to manage and monitor your expenses without necessarily having to create multiple accounts. You can also use these tracking systems if you also have a cash budget. One of the advantages of paying in cash is that you won’t be tempted to use a debit or credit card.

4. Keep all financial documents and receipts in a safe place

Keep track of every financial expense, no matter how small. All costs, whether a simple on-site printing job or a business trip abroad, should be well documented to avoid writing them off when filing your tax returns. . Backing up all financial documents can therefore save you a lot of money in the long run. With that in mind, consider creating two files; one electronic and one physical. Expense management software can also help make your job much easier here. Train your employees to save every receipt they receive both physically (in a folder) and digitally (scanned). This should make your accountant’s job much easier and more manageable.

5. Open a separate business bank account

Although most people run their startups from their personal bank accounts, it’s not a good idea and not recommended. It would be helpful to separate 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 liability company, it is a separate entity and must have its own account. However, you may not need a business bank account if you are an individual entrepreneur. Running the business from a personal account could save you money in fees. You need to be very organized to be able to track or separate business and personal expenses.

6. Hire an Accountant or CFO

Although it may seem simple, very few people can manage their finances effectively without making mistakes. Unless you have some form of accounting experience and expertise, it is best to have an accountant on your side. You can either hire an in-house accountant or outsource the service at a lower rate. It depends on your specific needs and whether the company can afford an in-house accountant.

7. Consider automated invoice processing

With the ability to transfer funds at the push of a button from anywhere, the risk of falling for fraudulent bills and bank information is relatively high in business. Many business owners have lost tons of money this way, which is why 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 bill.

Be sure to cross-check bank details before transferring large sums of money to customers or suppliers. You should also be wary of subscribing to the services of a foreign company. Some of these companies will automatically deduct said amount each month unless shut down. Consider opting for a one-time payment for these subscriptions rather than automated renewals.

8. Create multiple streams of income

While it’s good to stick with the original business idea, you have a better chance of growing and succeeding when you branch out. One way to do this would be to create multiple streams to generate income using the same business. A good example of this is a company that only deals in the sale of candles. Selling complementary items alongside the candles or hosting classes to train people in candle making can also help generate additional income.

9. Keep a reliable business savings account

Emergencies happen when you least expect them. Businesses, like individuals, can also experience an emergency. This can take the form of a broken device, equipment, or an accident. The business must be able to support the emergency without you, the owner, having to use your personal accounts. Creating and maintaining a reliable savings account for the business is one of the good ways to do this. The savings account will also help keep the business afloat in the event of a downturn.

10. Send invoices quickly

The key to success in business is to show no mercy to anyone unless absolutely necessary. This rule comes first when billing customers and sending invoices. Always send invoices as soon as deliveries have been made. Waiting a day or two to send the invoice will only delay cash flow and could lead to non-payment. The lifeline of your business is that customers pay what is due. Don’t apologize for sending them an invoice or asking for payment.

This article does not necessarily reflect the views of the editors or management of EconoTimes

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