When you own a small business and handle most of its day-to-day operations yourself, it’s understandable how the “desk job” aspects of it can be set aside in favour of the ones that need immediate attention. For instance, you may put off checking your cash balance because there are potential clients asking about a product or service, or the inventory is running low and you have to call your supplier for fresh stock.
For many entrepreneurs, managing finances is something that has to be done to keep their business running, but it’s not exactly on the top of their to-do list. Being able to manage business finances well will actually help you achieve your business goals. For one, you can identify areas where you can cut costs and increase efficiency. You can also be more in tune to what’s really happening in your business and get insights about the direction it’s heading.
Small business owners looking to boost their profits in the near future will do well to get started on managing their money now. Any guide to financial management will tell you that you need to be completely informed and have a clear understanding of the financial process before getting into any small business venture.
To help you make financial management a tool to succeed, here are some top pointers to get you started.
Know your cash flow.
The basic rule of cash flow is simple: if you have cash, you’re in business; if you run out of cash, it’s time to close shop. Put simply, no cash means no business. Before you dip your hand into moving things about in your budget or increasing the price of your products or services, you should know how money moves in your business–where does it come from and where does it end up?
Cash flow is the movement of money. If you know how money moves through your business, you’ll be able to pinpoint any areas where cash flow crisis may occur. Being able to understand the flow of money will also enable you to come up with cash flow projections that can be used to inform your business decisions.
One of the most important things about business finance is cash balance–how much do you have at the end of the day? Make sure to determine your cash balance and keep this figure updated. Avoid making business decisions based on inaccurate data (such as a cash balance from the previous year!). To help you check the numbers, it would be wise to hire a good accountant early on so you can get things right from the get-go.
Don’t mix business with personal.
Mixing business money with personal finances is a no-no. While this may initially be the case for many small business owners and startups, the sooner you can separate these two, the better. Not only will it give you an easier time when filing your taxes but it will also make managing business finances easier, and allow you to subsequently grow your business. One of the best ways to keep business finances separate from your personal funds is by keeping separate checking accounts. You should have a business checking account and a business credit card dedicated to your venture. This way, you can have a clear understanding of your finances by simply reviewing your bank statements.
Another great way to separate your personal and business finances is by using a record-keeping software that can keep track of both your personal and business accounts and help you avoid mixing one with the other. Using an accounting software can provide a valuable insight into your business as it helps simplify data entry and speeds up business processes.
Monitor performance by numbers.
To be able to manage your business finances well, you need to get the facts straight. Make it a habit to keep records such as receipts, bank statements, sales reports, and key performance indicators that enable you to track and monitor your money.
Data can then be fed into business analysis software, which can help you get a clearer grasp of how your business is doing financially. You don’t have to be a computer expert, either. There are many kinds of business analysis software, including mobile apps, that are easy to install and use so that you can keep an eye on your business wherever you may be.
Monitoring and analyzing business performance in this manner will help you make data-driven financial decisions. Having your business metrics on hand is like looking at a car dashboard and seeing the gauges and other indicators showing how a vehicle is doing. For businesses, these gauges include data on return on investment, break-even sales, and stock turnovers, among other performance indicators. And as on dashboards, these metrics will alert you when something seems to be off so you can focus your attention to it. Analyzing your business’ financial health should involve a thorough evaluation of how much debt your business has accumulated as well as a review of your financial ratios, which provides a clear picture of your business’ assets and liabilities.
Keep costs low.
There’s almost always something you can do to reduce operational costs and make your finances more manageable. Can you cut costs and still deliver a good performance? Of course! You can even streamline your operations, increase efficiency and productivity, and make more money when you do.
Take a look at your business operations and see where you can save time and money. In many case, it’s all about making smart choices on where you allocate your small business funds. For example, you can–and should–take advantage of the internet and use email, web messengers, and virtual phone lines to communicate. This will reduce the amount you spend on office paper, printer ink, and monthly telco fees. In reducing business cost, you can also take advantage of Internet marketing which can provide a fast-paced and low-cost marketing.
Creating a business budget is another way to reduce business costs. Sticking to a budget helps you make sound financial decisions backed with a clear picture of your monthly business expenses. In addition, you can make notes using cash flow information and your business metrics to identify areas where you can save. You can do your marketing online for example, or shift to e-newsletters instead of printed ones. Sticking to a budget goes far beyond financial numbers: it is an exercise of financial control within your small business.
There are plenty of other ways to cut business costs and improve your finances–be creative!
How are you managing your business finances? Any tips you’d like to share? Let us know!