7 Essential Tips to Manage Your Business Finances
Effective management of finances is one of the major challenges faced by any business owner, especially if it’s a small or medium enterprise. In fact, reports suggest that nearly sixty percent of the failed SMEs have poor cash flow management as the main reason.
The fact to be considered here is that, when you are a business owner, it does not suffice to only have a great product or an expert team. A successful venture entails a lot more than that. Even the best products or services offered can fail when you don’t move ahead with a sound strategy regarding handling your business finances.
Of course, owning a business and managing finances is like a continuous learning process, but here are a couple of tips that will help you make sure that you can start off on the right note. So, let’s get started!
- Keep an eye out on the spending
Do you keep track of the amount you spend every day or week of the month? If you don’t, then start making a habit of doing that from today. After all, not monitoring what you spend will simply lead to a misuse of funds.
Business owners usually keep multiple accounts, like a credit card account, euro bank account, savings account, and checking account. The amount you withdraw, spend, and deposit into each account has to be monitored closely.
Moreover, using the business credit card for small expenses, like getting a coffee machine or organizing lunch for the staff, might seem like no big deal, but even these expenses will add up if you aren’t careful.
- Don’t miss out on deadlines
You need to know when all your bills are due so that you can have enough cash with you at that time. Defaulting on bills like credit card payments, business loan payments, and accounts payable will only lead them to pile up and becoming ever more difficult to pay up in the future.
Besides, not knowing when your bills are due might mean added interests, late fees, lowered business credit, and bitter vendor and lender relationships.
So, stay on top of all your deadlines at all times. You can have apps that remind you or simply note the dates on your phone calendar.
- Don’t mix personal and business funds
There is no rule that mandates you to have separate accounts for personal and business uses, but it is important to do so for effective money management. The simplest reason behind this is the fact that you need your business bank statement to monitor spending, reconcile the books, and track profitability. Mixing business and personal funds will only lead to messy records, overspending, and, most importantly, missed opportunities for growth.
Furthermore, when you have all the funds in one account, it might be tempting to use it all for business expenses and leaving nothing for even emergency personal usage.
- Prepare a proper budget statement
No business is too small to have a proper budget statement made for it. In fact, creating a budget is the best way to manage money as it helps you in setting revenue and expense goals. The budget outlines the expenses you need for the smooth operation of the business.
When you have a clear idea of the amount of money you can spend without straining yourself, you are in a better position to control your finances.
Also, the budget foretells the revenue that your business can expect to earn in a financial year. When the projected revenue is lower than what was budgeted, you know it’s time to cut costs to increase income.
- Pay attention to managing inventory
Are you turning away customers because you don’t have enough products as per the demand? Or, do you have too many products simply collecting dust in the storage room? Both these situations are bad news for your business finances. The way you manage inventory directly impacts the management of your finances.
So, pay attention to the amount of inventory you already have and don’t cross that thin line between not having enough inventory and having too much of it. Inventory Sales and purchases have to be recorded in the books, and the money allocated to ordering more should be decided accordingly.
- Cutting costs to increase revenue
The simplest way to increase your business revenue is to cut costs wherever you can to decrease expenses. If you are finding it hard to manage your business funds, find out ways to increase income by cutting costs.
When you think about it, cutting costs might not be too difficult for most businesses. Start by analyzing the current expenses to eliminate the frills and scale back. Looking for new vendors might also come in handy in this regard.
The other ideas you can try for increasing revenue include social media marketing, email marketing, having loyalty programs, and offering discounts.
- Keep a small cash reserve handy
If there is one thing that’s certain about any business, it’s the risk factor associated with it. Regardless of all the calculated steps, you take and the efforts you put in, you can’t stop unexpected situations from arising, which leads to spending more money than you expected.
So, it is always a good idea to have a small cash reserve for your business to help you in managing money when you land up in a fix. Build your cash reserve by having business savings account on the side, and deposit money into this account regularly from what you earn from your business. Think of this as the fund for the rainy days.
The growth and success of your business depend to the greatest extent on your ability to handle your finances efficiently on a regular basis. The key to ensuring that lies in proper organizing, planning, controlling, and monitoring the finances at all times to have a complete picture of the health of your business. And, following the tips that are given above will surely be of great help to you in this regard.