All businesses, big or small, are concerned about one thing - managing money. Proper financial management is essential to surviving a volatile economy and the industry competition.
Every business needs an economic structure that generates profit to stay credible. Small business owners need to be equipped with proper money management skills to turn their venture into a success story.
Educate Yourself
The first thing is to educate yourself on various aspects of finance.
For beginners, learn how to read the financial statements if you don’t know how. These financial statements are essential as they tell you all about your money - where they came from, the purpose for which they were used, etc.
The financial statements contain four essential details,
- Income Statement: It is the revenue earned within a specific period.
- Cash Flow Statement: It analyzes investments, operating activities, and financial inflow/outflow.
- Shareholder’s Equity: The amount by which the company is financed through common shares or preferred shares.
- Balance Sheet: It provides information related to the company’s assets, liabilities, and shareholder’s equity.
Separate Personal and Business Finances
It is crucial that you always keep personal finances and business finances separate.
One way to do this is to get a business credit/debit card and make all business expenses through it. This will help you track your outlays and also keep you in control.
You can open a savings account dedicated only to your business, where you can transfer a certain amount from each payment that you receive and can gradually build considerable savings.
Manage Your Expenses
It is crucial that business owners stay tight-fisted to keep their costs in check without hampering customer satisfaction.
Costs can be classified into fixed costs and variable costs. While fixed costs have to be paid regardless of whether your business is making a profit or not, there is scope for savings in variable costs. That is why in the early stages of business, it is smart to keep your fixed expenses as low as possible.
For example, rather than buying expensive software, you could work with free, open-source software, which could be equally good.
Also, you can conduct free online calls over Skype, Hangouts, or video conferences instead of traveling long distances.
Plan in advance for large expenses such as payroll, rent, interest, taxes, cost of materials, utilities, debts, and other operating expenses that can help in reducing the financial load. They would also ensure your cash flow position stays strong even in the tightest months.
Managing Invoices
To make receiving payments a hassle-free and easy process, you need to determine how you will accept payments.
If your business is service based, you will have to send out invoices regularly. If your business is product based, you may want to accept digital payments.
Buy or Lease the Business Equipment
One major investment decision is whether you’ll be renting, leasing, or purchasing equipment.
Though purchasing will give you complete ownership, you can’t deny that renting will help you keep costs low.
The money saved can be used for other business activities to increase overall performance and profit.
Invest in Accounting Software
Cloud-based accounting software will give you the convenience to manage your finances. Web-based software provides you with real-time insights.
It allows you to update, track, store, and access data from anywhere at any time. Whether you’re at the office, home, or traveling, you can conveniently work with your data from anywhere. It is hassle-free, dependable, and error free.
Monitor and Measure Performance
When large amounts are involved, it is crucial that you, as a small business owner, keep tabs on the movement of your money.
Keep looking at your business's financial performance in comparison to the past financial statements to project your future expenses, cash flow, and revenue.
Be aware of these aspects as it will help you make firm decisions for your business.
Hire a Professional for Guidance
Nobody can truly be an expert at everything and will need some professional help from time to time.
Sometimes, it’s a wise decision for a small business owner to consult with a professional, even if it is part-time. They can help you determine the current position of your business and where it is headed by analyzing your business data and comparing it with the larger industry data.
Be it payment for the current year or tax planning for the next year or marketing, they can go a long way in guiding you to make smart business decisions.
Understand Your Business Loan Options
At a certain point in the financial trajectory of your small business, you will likely need to seek financing in the form of a small business loan, whether that’s to fund the growth of your business or to deal with short-term cash flow challenges.
Every type of business loan has different eligibility requirements. Understanding the different financing options and their respective qualifying criteria can help you organize your small business finances.
Running your own business can be exciting, but it can also be challenging and nerve-racking.
Especially when it comes to managing finances in an efficient and lucrative manner. Therefore, if you are struggling or are unsure about how to manage your finances, keep the above tips in mind and give your small business a bright future.
About Our Guest Author
Vice President of Digital Marketing
Joseph Brady
Joseph Brady is Vice President of Digital Marketing for Reliant Funding, a provider of short-term working capital to small and mid-sized businesses nationwide. He has more than 14 years of experience in B2B digital marketing, optimization, and operations, with a focus in the financial services market.
Header image courtesy of Stockunlimited.