Money Management Tips
Lack of cash flow is among the most common reasons that small businesses tend to fail. In fact, 29% of small businesses closed because they lack enough cash to sustain their operations.
Do you need help handling your business’ finances?
Are you having a hard time controlling your day-to-day cash flow?
Do you want to make sure you're managing your money properly now so that you don't have problems later on?
Whatever issues you're currently facing, we've got solutions for you. Read on to learn about seven great tips for small business financial management.
Common Small Business Financial Management Challenges
There are many challenges small businesses face when it comes to financial management. The following are some of the most common challenges:
Access to funding
Inconsistent cash flow
Mixing business and personal finances
Not receiving payments on time
Difficulties with day-to-day financial management is also a common problem for small businesses. Lots of business owners struggle with things like expense tracking and handling invoices, for example.
Small Business Financial Management Tips
Are you facing any of the challenges listed above? Do you want to take steps to avoid them? If so, these seven financial management tips can help:
1. Educate Yourself
Financial literacy is a critical tool for small business owners seeking to ensure that their businesses thrive long-term.
The more you know about money and money management, the easier time you'll have with some of the common challenges we’ve identified above.
A great place to start towards achieving financial literacy is learning to read financial statements. Financial statements tell you everything you need to know about your money, where it originates, where it is, and where it's going.
If you have no idea what you're doing when it comes to money management, you may want to find a mentor who can help you learn the ropes.
Reach out to your local Small Business Administration (SBA) office to see if they can connect you with a mentor.
2. Separate Your Finances
One of the biggest challenges for small business owners is mixing personal finances with business finances. It's not hard to understand why this is problematic.
If you haven't already done this, create separate bank accounts for your business finances and your personal finances and keep these accounts totally separate.
Don't use your business accounts for personal matters and don't use your personal accounts for business matters. Your life will be a million times easier if you do this right off the bat.
It's also a good idea to open separate savings account for your business. You can use this, for example, to set aside money for your quarterly tax payments.
3. Be Frugal
This tip is especially important for new business owners.
When you don't have a lot of capital, you need to think carefully about every cost and expenditure. While you shouldn't be so cheap that you hinder your service or customer satisfaction, you should do whatever you can to avoid unnecessary costs and expenses.
Remember that every business has both fixed and variable costs. [WOULD BE NICE TO ADD A BRIEF DESCRIPTION OF WHAT IS A FIXED COST AND WHAT IS A VARIABLE COST]
You can't do much about fixed costs, but you can control your variable costs, and you should try to keep these as low as possible.
As an example, consider using free software instead of branded programs and look out for free apps to communicate with your employees.
4. Measure and Monitor
Make sure you're monitoring your books and records on a regular basis. Try to set aside time once a month, if not once a week, to review your books and records and make sure everything reconciles.
Monitoring your books and records regularly will help you stay focused on your business's finances. It will also help you catch and address unusual or suspicious activities like wasteful spending or improper billing.
Initially, going over your books and records can be daunting and stressful. The more you do it, however, the easier it will be.
5. Build Your Business Credit Score
The better your business credit score is, the easier it will be for you to get financing when you need it. The following are some of the best strategies you can use to build your business credit score:
Establish trade lines with your vendors so you can build your business credit score every time you pay on time
Pay your bills on time, or early if you can
Monitor each of your business credit reports regularly to check for errors
Be sure to work on building up your personal credit score, too. Your personal credit score influences your business credit score, especially when you're first starting out or operate a sole proprietorship.
6. Know Your Business Loan Options
At some point, you may need to take out a small business loan to keep your business afloat or to support its growth or expansion.
There are a lot of different types of small business loans available, including the following:
Business lines of credit
Small Business Administration (SBA) loans
Business credit cards
Merchant Cash Advances
Remember that it's best to apply for loans early on -- don't wait until your business is in financial trouble to ask for help. This will make it much harder for you to get the funding you need and on the best possible terms.
7. Use Reliable Accounting Software
Finally, be sure to use reliable accounting software. This is especially important if you're not in a position to hire a bookkeeper to help you manage your finances.
You don't have to spend a lot of money on accounting software, either.
There are lots of low-cost and free programs out there that can monitor your spending (you can usually link them to your bank accounts) and help you stay on top of your funds and daily activity.