Tips for Managing Finances for Your Small Business
Managing finances is never easy whether you are a large enterprise or an entrepreneur. Often for small businesses, the core skills lie in customer service or sales as there aren’t many personnel to handle different facets of the organization. At such times, it is easy to neglect financial management and you could easily fall into bad finance practices that can harm the business in the long run.
One of the first things that all business owners must do is educate themselves. Understand the basic skills required to run a small business whether it is accounting or writing financial statements. By getting into the habit of monitoring and updating your financial statements, you create the foundation for a stable business future.
According to cashmagneet.nl, "Being organized is key to sound money management." Here are a few things small businesses to do stay on top of their finances:
1. Day-to-day money management
There is nothing more frightening than a business owner who shows up at the accountant’s with a box full of receipts and bills and a handful of bank statements.
In order to manage your accounting properly, hire a bookkeeper or use a DIY accounting software. It is imperative to keep track of your day to day income and expenditure.
Equally important is to review your costs from time to time and track where the money goes so you can optimize your savings by cutting out on unnecessary expenses if any.
2. Make financial projections
Can you chart your business growth and forecast sales? All business owners need to have transparent financial projections. Your main business strategy enables you to anticipate and address possible future obstacles or lean months where you need to prepare better. One way you can do that is use a spreadsheet to project your sales over the course of a few years. Now create an expenses budget, cash flow statement and income projections.
3. Be careful with invoicing
Invoicing is the blood-flow of your business. If you get slack on invoicing, then you will fall short of the money required to run your business smoothly. A good practice is to send out invoices as soon as possible after providing goods and services. Fix your payment terms to a stipulated time period so payments are not lost or forgotten unnecessarily.
Follow up without fail and automate the process as much as you can. Use one of the top free invoice templates for email/SMS follow ups.
4. Don’t mix business with personal
No matter how small your business is, it is best to keep a separate business bank account. Mixing business money and personal finances is a recipe for disaster. It is also easier for your to track profitability of your business and expenses if the accounts are held separately.
5. Keep track of your business loans
Ensure you keep accurate records of business loans. Once the business is profitable, you can start paying back the director’s loan before you pay tax on the remaining profit.
You can also apply for cash loans as and when required by your business. If you want to scale up your business but don’t have the capital to invest, you can avail a loan quickly to make up for the deficit. Just be sure to set aside part of your profits to pay off these loans.
6. Invest in business growth
Dedicate a percentage of your profit to business growth. This enables your business to thrive and move forward to a healthy financial future.
Customers return to businesses that provide exceptional services, show they are passionate and innovative. Employees stay motivated to work with a business when the employer shows a vision for the future. Ultimately, investing your business’s growth builds more value for your business and goes a long way in securing your future.
7. Measure your ROI
When you use metrics to track expenditures and your return on investment, you get a definite idea of where to invest and where to cut down. For small and medium businesses, this is a crucial step as it prevents you from losing money on irrelevant or bad spending bets. If your investment is not paying off, cut back and spend on those efforts that are rewarding you.
8. Consider insurance
For entrepreneurs, insurance always seems like an unnecessary expense that can be avoided. However, to build a profitable portfolio and safeguard your business against many vulnerabilities, insurance is a must.
Insurance gives you the much-needed security for your business and your dependents. Don’t go overboard. Study the competitors and research your options before you buy the kind of insurance that your business really needs. Some of the most common insurance types include general liability and professional liability insurances.
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A business owner is saddled with many responsibilities. Yet, finances should and must take priority if you want to expand and grow. After all, money to a business is what oil is to an engine.