One of the biggest challenges faced by small business owners is how to manage finances. It is very easy to focus on generating more business and pay very little attention to accounting for the revenue generated. In order for your business to grow to the next level, financial management should be among your top priorities.
Financial management is not just about keeping proper records of all transactions. It also entails ensuring that you are not overspending. At the end of the day, you want to always distribute your profits properly and be prepared for all of your business expenditures.
Sound financial management entails managing your cash flow in such a way that you don’t find yourself unable to pay your rent, telephone, payroll, insurance and supplies. You must always have the foresight to know when outstanding bills and account receivables are due.
Here are some tips that can help you manage your finances better:
Keep your personal and business expenses separate
This is a great way to ensure that you are always on top of your game when it comes to your business expenditure. Drawing money from the business to pay personal expenses creates a lot of complications when it comes to tracking your expenses. The best way to avoid confusion is to keep separate bank accounts and credit cards for your business and personal expenditure.
Don’t forget to track your invoices
Many small business owners forget to follow up on customer payments and invoices which adversely affects their cash flow. Sometimes it can take a long time to realize that your customers are not paying you in good time or are just not paying altogether. Record when invoices are paid, how long it took for customers to pay and which customers generally don’t pay in good time.
Hire a professional
Although it’s always tempting to save some money and do the bookkeeping work yourself, it is important to seek the services of a professional who understands all the best practices and relevant tax laws. A bookkeeper is the best placed person to save you from having to pay penalties and also find areas that will help you save some money.
Negotiate with your vendors for bargains
You can always find better deals when you make an effort to negotiate with your vendors. At the same time, look out for payment terms like cash discounts, grace periods and late payment penalties. These are always great opportunities to save you some money. In some cases, you can find yourself saving up to 10% or more of what you were supposed to pay.
Find a balance between capital costs and operational costs
It is important to bring your capital costs lower and focus on the operational aspect of the equation. Operational costs don’t entail complex calculations to determine depreciation costs. At the same time it not difficult to adjust them from one year to the next.
Use credit effectively
Not all credit facilities are ideal for every business. If you are looking for a credit facility, make sure it matches your business’ individual circumstances and plans. If you are seeking financing for long-term capital expenditure, a term loan is ideal for you. For short-term working capital needs, lines of credit are the most suitable.
Reduce your expenses
There are many ways you can reduce your operational costs without necessarily compromising on the quality of your products or services. For example, using your credit card to pay business expenses can cost your business a lot of money in the long run and should be avoided. One of the ways to reduce your expenses is to create a budget and stick to it.
Budgeting is one of the best ways to deal with bad spending habits. It allows you to refocus the financial goals of your business and ensures that you are only spending money that you actually have. A budget also keeps your business better prepared for unexpected emergencies. If you hadn’t considered budgeting in your business, it is time to start doing it.
The importance of proper financial management for a small business cannot be gainsaid. Cash flow is what keeps your business running. Financial management helps ensure that your business is financially sound at all times. The last thing you want is for bad financial decisions to hamper the growth of your business.