A good number of small businesses fail because they run out of cash. Don’t let yours be among them. Check out this guide to small business financial management
Many people are unsure of how to make their small business financial management efficient. In most cases, the success of a firm is a result of managing finances well. If you’re just getting started, you might see this as a chore and end up falling into financial habits.
The best thing as a business owner is to teach yourself the basics of money management, accounting, and taking loans. There is nothing scarier and riskier than waiting to show up at an accountant’s door with receipts of 12 months. It’s critical that every business owner knows how to handle their finances.
Here is a guide to help you in small business financial management.
1. Pay Yourself First
If you’re the business owner, it’s easy to focus on the daily operation of the business. Many people will focus on plowing back all the profits back to the business and paying everyone else but them.
This means that if the business doesn’t go as planned, they will not have ever earned anything from the business. As much as using your share to grow your business is great, it’s also crucial to pay yourself and make sure your finances are in order. You’re part of the business. You deserve compensation just like everybody else.
2. Invest in Growth
Besides compensating yourself, this is another small business financial management hack that you don’t want to miss. Always set aside money to cater to any growth opportunities. This enables your business to move towards financial freedom.
A good business will use the fund to attract the best talent in the industry to work for them. This is by offering great employee policies such as free degrees. In return, employees improve their skills and gain more experience in handling customers’ needs.
3. Be Creative with Your Billing Strategy
Every enterprise has those clients who are constantly making late payments. Keep in mind small business finance financial management involves making sure the enterprise is running well on a daily basis. If you’re not able to collect from some of your clients, it might be time to find better ways to bill them.
Too many unpaid invoices are the leading problem of cash flows that could result in business failure. If you’ve got a chronic late-paying customer, instead of banging their phone to make payments every end of the month, find a way to entice them. For example, tell them they will have a 2% discount if they pay by the 5th, but the full amount if it’s past that.
4. Spread Out Tax Payments
If you’re struggling to save up for the quarterly tax payments, make it a monthly project instead. This way, you can treat it like any other monthly expense and eliminate the pressure of the lump sum.
5. Monitor Your Books
This is a critical small business financial management tip, but many business people ignore it. Set aside one day every month to review your financial records, even if you have a bookkeeper. It will give you more light on the finances of your business and prepare you just in case of any potential crime.
Failing to monitor your books may lead to embezzlement or wastage of resources. Always make an effort to know how your business money is being spent.
6. Encourage Good Financial Habits
Have a day that you block all the activities to review the finances of the company. This can help in protecting the financial well-being of your business. Keeping up with finances can help you mitigate risk and fraud.
It also helps you in monitoring the activities of your employees to make sure they are abiding by the law in the daily activities in the firm.
As a small business, the resources can be tight, and blocking a whole day might seem like a waste of too much time, but this process is worth the time.
7. Plan Ahead
Incidents happen that often require urgent attention. This is why it’s crucial to learn how to delegate duties as a business owner. This includes planning for the financial future of your business for years to come.
If you don’t have a ten-year plan for enterprise, you may want to draft one soon.
8. Go Digital
Going through tons of paperwork for accounting isn’t the most ideal scenario anymore. Besides, this increases the chances of human errors, which may cost you a lot of money.
Embrace cloud-based business tools to manage your finances. You can organize all your funds on digital products and even have a backup plan. Having a business expense tracker, for example, will surely come in handy, it will help you track your expenses better and be organized. Using online invoicing and accounting tools also makes it easier when filing taxes.
9. Automate Your Bill Payments
As a business owner, it’s impossible to remember all the bills that need to be settled monthly. Making payments is also time-consuming, and it takes away time that you could have otherwise used on other primary activities.
Whether it’s your credit cards or utility bills, use online banks to automate the payments and always have enough finances in your accounts. This will save you time and protect you from a hefty penalty for making the payments late.
10. Payroll Funding
Sometimes cash flow fluctuates when you’re running a small business. However, delaying payment for your employees is something to avoid at all costs since they are the core of operating your business.
Payroll funding is a simple, straightforward method of funding your business. All you need to do is serve your customers as usual, and then submit your invoices to the funding company. They will, in return, deposit at least 90% of the invoice money, and later cut a certain percentage when all clients pay.
This money not only helps you in paying employees but also running other sectors of your business.
Want to Learn More about Small Business Financial Management?
Proper small business financial management could be the difference between profiting and shutting your business doors. Therefore, as a business owner, it’s crucial that you understand a few things about accounting to monitor your business finances.
This helps you understand the whole financial system of your business. With this knowledge, you can mitigate risks and fraudulent activities. It can also help you plan for the future for more financial success.
If you want to learn more about the tips for the financial management of a startup, visit our blog.