There are many challenges that accompany starting and managing a small business, but one of the toughest is figuring out how to best manage your finances. The success of your business is not only dependent on how much you make, but also on what you do with your incoming funds.
The following 7 tips are practical, yet vital, when managing the finances of your business:
1. Start a Budget
You MUST actively account for how much you are bringing in versus how much
you are spending. Track expenditures and revenues, allocate funds to the essential spending accounts, and watch your savings. Understanding and knowing exactly where your money is going is extremely important. Be disciplined - each dollar should be assigned and traced. Without a budget, you are walking around with a blindfold on and it’s only a matter of time before you run into a wall.
Once you have a handle on how much is coming in and going out and exactly where those funds are going, make it a priority to always spend less than you earn. It sounds simple, but so many people do not do this in both their personal and business finances. Living beyond your resources means you are accruing debt. Period. Cutting back on your expenses and saving even a little each month will quickly add up and help you stay on top and out of money trouble.
With a budget in place, it is then important to focus on saving money for the seen (and unforeseen) future of your business. This is not just about stashing leftover money from your revenue, but also about being smarter with your money. Some simple ways to save big include buying used office furniture (from thrift stores, Craigslist, etc.), shopping around for the best office supply deals, using coupons whenever possible, following through on mail-in rebate offers, stocking up on frequently used office items when they go on sale, and not wasting money on unnecessary supplies. Also, make sure you are familiar with all of the city government resources and local tax credits that are available to you.
Another great way to save is to negotiate with vendors before signing contracts. Sometimes you have to work a little harder to get a better deal, but the potential for savings can be huge in the long run. Make sure to examine vendor purchase terms such as late payment penalties or grace periods.
3. Keep finances separate
Set and maintain a clear perimeter of your personal and business expenses. Make sure that credit cards and loans set up for your business, as well as other business related accounts such as PayPal or Venmo, are strictly used for the business. A few additional reasons to make sure you have clear boundaries between your business and personal accounts include tax issues, personal liabilities, and jumbled accounting records. By keeping your business and personal finances independent of one another, you will save yourself a huge headache in the future.
4. Hire a CFO
If you cannot afford a Chief Financial Officer (CFO) at this point, try you hire an accountant or an experienced professional to help manage your business finances. They will not only keep track of your finances but can alert you of areas where your cash flow may need some extra attention.
If money is just too tight to hire someone else to keep track of your business finances (and even if it isn’t), it is a great idea to spend some time learning the basics of accounting. Take an Introduction to Accounting course at your local community college or sign up for an online course in order to better understand how cash moves in and out of your company. As a small business owner, you will be responsible for making some big money-related decisions for your company and the better understanding you have of business finances and cash flow, the better prepared you will be to make wise money management decisions.
5. Increase your cash flow
It’s much easier to manage money when you have money to manage. With budgeting and savings covered, you can now focus on ways to increase your cash flow. For example, you can develop a rewards program, provide discount incentives to loyal customers, expand payment options, or implement a flash sale.
A frequently forgotten aspect of improving cash flow is to look at the payment terms for your suppliers compared to the payment terms for your customers. If you are required to pay your suppliers within 30 days but allow your customers to pay within 45 or even 60 days, you are creating a gap in cash flow. Consider matching your customer terms of payment with your supplier terms of payment. Implementing late payment charges may be an incentive for your customers to pay ontime, just as it is for you.
6. Never use credit cards to pay your bills
Unless you can pay the credit card off IN FULL every month, DO NOT USE IT! Paying with borrowed money only leads to more debt.
7. Always pay your bills on time
This is a no-brainer, but it’s surprising how many businesses lose money because of it. The life of a small business owner is hectic, but forgetting to pay a recurring bill by the deadline is costly. Late credit card or loan payments can cost you dearly, not to mention the serious penalties for filing late taxes, but even what appears to be a small late fee on utility bills or vendor fees can add up over time.
If you find yourself frequently forgetting to pay your bills on time, set up a monthly reminder so that you can avoid being charged those unnecessary late fees. Especially for small businesses, avoiding such fees could be the difference between ending the year in the red or black.
By implementing these 7 tips, your finances will most assuredly skyrocket your business to the next level!