26 Mar 6 essential tips for small business finances
Great business ideas, great dedication and effort are all key components of creating a successful, profitable business. Yet, the single most important objective for any commercial entity is to make a profit. Cash is king and this should be the objective for any business and that comes from making sensible money management decisions.
This is especially essential when operating a small company or SME which has to produce consistent profit month after month, making wise monetary decisions will keep the company cash flowing and ensure overheads are being paid on time. In the modern day world of commerce, any advice should be well received and the following tips should be absorbed to give yourself that ‘edge’.
Here is 6 of the best possible tips for managing your business finances:
- Keep Separate Business and Personal Accounts
It is imperative that you keep account of every penny you spend on business as this very important, you can always get assistance with money management from CashFlex. It is important to know what kind of profits you are making and this will help you develop future strategies to ensure you maximise profitability. If this is not done, your accountant will have a difficult time understanding what is what. It will only create problems if you keep accurate accounts figure for your business.
If you are operating a business, regardless of the legal requirements, make it a matter of personal choice to separate the business and personal accounts with no exception. The money in your business is not yours to spend until you turn a profit, withdraw it and remit it to your personal account. All good entrepreneurs will understand that they should not treat their business account like their own private current account as tempting as it may be.
- Meticulously plan Your budget
Constructing a solid budget and sticking to it is very important. The last thing you should do as a small business owner is to over extend yourself in any way and proper budget will help you manage your money effectively. Once you have created your budget based on what you know you can afford, try not to go exceed this budget unless the company is growing much faster than you expected. Even then, make sure you keep a tight rein on your cash flow and redo your budget to avoid simply throwing money at projects.
- Collect Your dues
As your business develops and grows, you will start to accumulate clients and some of those clients will eventually owe you money. It is very important to maximise your credit control as outstanding debts can seriously affect your cash flow. Furthermore, you really do not want to operate a business where people think they can just owe you for as long as they want. No business has ever lost a client because they had to pay. If your receivables go out of bounds (i.e. over 60 days) then you can hire a Professional Business Debt Collection Agency or possibly even a law firm if its heavily disputed. It really will pay to stay on top of your client’s accounts.
- Find ways to budget
Over the years, I have seen a large amount of small businesses go out and splash lots of money on furniture, expensive branded software and other items they really do not need. When just starting out, people tend to be super enthusiastic and go with the “you have to spend money to make money” nonsense ethos which is not always to right way to go.
While it is true that you must spend money to make money, it is important to invest in the important, essential things and minimise cost on the less important. Seeking a low cost office, cheap furniture or using basic accounting software can mean the difference between making and losing money.
- Constantly monitor Your Performance
As mentioned earlier, it can be really tempting to see money flowing in and just be happy with that, without really keeping an accurate assessment on how much is actually profit. This method of things can often lead to you overestimating how much you are really profiting and you could start spending more than is necessary and more than you can afford. Make sure you constantly monitor and keep track of every cent that comes in and out of your accounts.
Produce weekly and monthly costs reports and aim to understand your return of investment every time you pay a dollar for something.
- Be wise with Your Credit
Banks and credit companies will be all too happy to issue loans to you, quite often with low rates. But acquiring too many loans and investing them recklessly will lead to financial demise. If you are managing a small business, optimally you will want to operate with no financial obligations whatsoever. If finance is necessary, ensure you have a detailed plan on how you will service and maintain the payment of them. After all, not paying off finance could cost you your business.
There are many smart entrepreneurs out there but this does not necessarily mean they are smart business people. Running your finances efficiently will mean the difference between success and failure. Whether its using budget software to manage accounts or using Professional, regulated Debt Collectors to recover unpaid invoices, being conservative with your budget in the short term will bring gains for the long term.
Hopefully this article will provide some guidance to those wannabe entrepreneurs out there to pause and think before acting on impulse.