There’s no doubt that starting and managing a business can be challenging, but of all those challenges, money is the topmost concern for most budding business owners. A study conducted by the National Small Business Association (NSBA) revealed that 27% of small firms claimed they weren’t able to obtain the adequate funding that they needed. However, funding a business is just the beginning — managing the cash flow when your business is fully operational is a bigger challenge.
While sales and profits are key to the success of a business, the way you manage your money can be a huge factor. Many small business owners make the mistake of mishandling their finances, leading to goals not met and worse, their business failing. In fact, the most frequent reason why small businesses fail is due to money problems; to be exact, that accounts for 82% of businesses.
The silver lining is that there are many small and easy things you can do in your day-to-day operations to effectively manage your business’ finances. Here are some practical money management tips to boost your small business’ potential for success:
1. Establish a budget
A budget helps to ensure that you can smoothly operate your business and manage your expenses and revenue without compromising your cash flow. The key components that should be included in your budget, at the very least, are the following:
- Accounts receivables
- Overhead costs
- Operating expenses
- Debt repayments
2. Strictly adhere to your budget
Establishing a budget is one thing, and it’s also another thing to maintain it. Always keep your budget up to date to make sure that it reflects any changes in your operating environment. It’s crucial to adhere to your budget at all times, and to maintain a clear separation of your business budget and personal budget.
3. Regularly keep payables updated
Payables in the form of utility bills, credit card and loan payments, and taxes should always be diligently settled; otherwise, late fees and penalties can add up and compromise your finances. Set up monthly reminders and a schedule that shows you the important dates of when you need to pay, how much, and to whom.
4. Set up policies for accounts receivables
Policies should be in place to encourage clients to pay on time. This enables you to effectively manage your receivables and maintain your cash flow. Consider providing discounts for early payments, or setting up an auto-debit arrangement for you to promptly collect payments from your clients. It’s also prudent to charge interest on accounts that are past due.
5. Reduce unnecessary expenses
It’s always good to look for ways to cut back on unnecessary expense. An audit can help you reveal redundancies and inefficiencies in your business that you can address. Consider white labeling your products and services, or outsourcing tasks to a reputable agency. It’s also important to encourage your in-house staff to commit to reducing expenses and to making frugality a habit; for example, turning off computers and lights when not in use, and limiting colored printing, among many others.
6. Know your accounting basics
While you can easily hire a bookkeeper, accountant, or even a chief financial officer to handle your business’ finances, you as a business owner also should know at least the basics of business accounting. The more you understand your finances and cash flow, the more efficient you will be in making money management decisions.
As a small business owner, it can be often overwhelming managing every aspect of your business — from launching, to marketing, to lead generation, to selling, down to managing your cash flow. Partnering with a trusted outsourcing agency to take care of even the important business tasks, such as digital marketing, can help ease off the load. Most importantly, outsourcing can help cut down costs without compromising the quality of services.
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