Training and organization are two keys to ensuring the financial health of your business. Good management of your finances stabilizes your business and reduces the risk of bankruptcy.
If you are (or will become) an entrepreneur, you know that managing finances can be a challenge. You probably prefer to focus your efforts on making your product or delivering your service. Business finance can feel like a chore, and you could pick up bad financial habits that could one day hurt your business.
If you don’t have a lot of experience managing a business’s finances, check out this article for tips on how to manage a business’s finances.
The Importance of Managing Your Business Finances
The most important step for any business owner is to get educated. By understanding the basic skills needed to run a small business — like performing simple bookkeeping tasks, applying for a loan , or writing financial statements — business owners can create a stable financial future and avoid failure. In addition to training, good organization is a major component of good financial management.
For the entrepreneur, managing finances is more than an annual meeting with an accountant. It is vital for a business manager to understand the importance and benefit of properly tracking financial information throughout the year.
Tips for Managing the Finances of a Start-up Company
Want to stay in control of your finances? Here are some steps you should take as a small business owner.
1. Pay Yourself
If you run a small business, it can be easy to try to squeeze everything into day-to-day operations. After all, that extra capital can often help your business grow. Especially in the beginning, you might be tempted to neglect paying yourself, thinking it’s more important to keep the business running and pay everyone else.
However, as a business owner, you should not neglect your own role in the business and should compensate yourself accordingly. Remember that you are part of the business and should pay yourself as much as you pay others. You want to make sure your business and personal finances are healthy.
2. Invest in Growth
In addition to getting paid, it’s important to set aside money and explore opportunities for growth. It can allow your business to thrive and move in a healthy financial direction. Indeed, business owners must always keep an eye on the future.
For a small business to continue to grow, innovate and attract the best employees, it must show that it is ready to invest in the future. Have no doubt that your customers will appreciate the increased level of service. In turn, employees will see that you are investing in the company and in their careers.
And in the end, you will add value to your business , much more than if you just spent all your profits on personal business.
3. Don’t be Afraid of Loans
Loans can be scary. You might worry about the risk of default and the possible dramatic financial repercussions.
However, without the influx of capital you get from loans , you may face significant difficulties when trying to buy equipment or grow your team. You can also use the proceeds of a loan to increase your cash flow and thus have fewer problems paying your employees and suppliers on time.
4. Limit Yourself to the Really Necessary Stock
Inventory management is an area that can have a big impact on your business finance. If you are not careful, you will lose money because of unsold and perishable products. You will also have storage costs that are too high. It is therefore essential that you learn how to optimize your stocks.
5. Have a Good Billing Strategy
Every business owner has to deal with customers who pay late bills. Managing your small business finances also means managing cash flow to ensure your business stays afloat day to day. If you’re having trouble collecting amounts owed by certain customers, it might be time to get creative with how you bill them.
If you have too much money tied up in unpaid bills, it can lead to cash flow problems, and this is one of the main causes of business failure. If you have a client who regularly pays late, the best solution is not necessarily to harass him with reminders and repeated phone calls. Instead, try a different approach by changing the billing terms .
For example, if the invoice’s normal due date is 30 days, you can offer them a 2% discount if they pay the full amount within 10 days. This type of mechanism can help you improve the collection rate of your debtors and improve your cash flow.
6. Spread Out Tax Payments
If you’re struggling to save up to pay your taxes at the end of the quarter, set up a monthly payment instead. This way, you can better anticipate and treat tax payments like any other monthly operating expense.
7. Monitor Cash Inflows and Outflows
This is an obvious, but very important practice. Do your best to set aside time each day or month to review and check your books, even if you work with an accountant. Don’t neglect bank reconciliations and spend some time each month reviewing unpaid invoices.
This will allow you to become more familiar with your business finances and eliminate unnecessary expenses. In addition, you will also avoid leaving your accountant in complete autonomy and you will be able to keep an eye on his work.
8. Focus on Spend but Also on ROI
Measuring spend and ROI can give you a clear picture of which investments make sense and which may not be worth pursuing. As a start-up business owner, you definitely need to be careful about how your money is spent.
Focus on the ROI that comes with every spend you make. If you don’t, you can lose money with irrelevant investments or bad spending. You need to know where your hard-earned dollars are going and if each investment is profitable. If an expense isn’t profitable, reduce it and spend a little more money on initiatives that work for you and your business.
9. Establish Good Financial Habits
Establishing internal financial protocols, even if it’s just spending time reviewing and updating financial information , can go a long way to protecting the financial health of your business. Keeping track of your finances can help you mitigate fraud or risk.
Since your company is young, you are probably short on time and money, and your technological capabilities are limited. However, this should not prevent you from implementing some kind of internal control, tools exist.
This is mainly important if you have employees. Weak internal controls can lead to theft or employee fraud, and can potentially land you in legal trouble if you (or an employee) violate certain laws.
10. Plan Ahead
Sure, you have day-to-day issues that you have to deal with, but when it comes to your business finances, you have to plan for the future. If you don’t look ahead five to ten years, you’re already behind the competition.
Bottom Line: To best manage small business finances, pay yourself a salary from your business earnings , plan ahead, pay off debts on time, and focus on your business. return on investment.
Bottom Line: Managing your business finances is important to creating a stable financial future where the risk of bankruptcy is minimized.