Money Management Tips to Keep Your Small Business Afloat
No business owner likes being strapped for cash, but mismanaging cash flow happens. If you’re struggling to control your small business funds, check out the money management tips in this article.
What is financial management for small business owners?
Money management is the process of handling your business’s finances through budgeting, setting goals, tracking expenses and income, and investing.
With a sound money management plan, you can avoid periods of negative cash flow and ensure your business is on track to turn a profit.
Failing to wisely manage money can lead to problems like making late payments, running out of money, and not collecting on your accounts receivable.
To keep business operations running smoothly, you need enough money to cover expenses. Put these nine tips to use to learn how to manage money in a small business effectively.
1. Stay on top of deadlines
If you don’t know when your bills are due, such as accounts payable, business loan payments, or credit card payments, you might not have enough cash on hand. Not to mention, failing to know when bills are due can set you back with late fees or added interest, lower your business credit, and sour lender and vendor relationships.
To avoid missed bill payments, stay on top of your deadlines. Record when payments are due and set reminders so you don’t fall behind. Pencil in due dates on a paper, phone, or computer calendar and get on a consistent payment schedule.
2. Monitor spending
Do you know how much money you spend per day, week, or month? If you don’t monitor spending, you could be racking up bills that you don’t need. And, failing to monitor spending can lead to overspending and misuse of funds. http://kinggimp.com/
Many business owners have multiple accounts, such as a checking account, savings account, and credit card account. Make sure you know how much you withdraw or spend from each account to stay on top of account balances.
It’s easy to use your business credit card, debit card, or checks to cover small expenses. A little lunch for the staff here, a new coffee machine for the breakroom there… But small expenses add up. If you don’t keep an eye on your spending, you could be fitted with a sizeable bill that you aren’t prepared for.
When monitoring spending, you should also factor in uncashed checks. When you write a check, the recipient doesn’t need to cash it right away. If you forget to monitor spending, you could end up with an overdrawn account and overdraft fees.
Track your expenses by managing your accounting books. You can use a simple software to record accounting transactions. When you have a log of your expenses, you can easily monitor spending.
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3. Don’t forget about accounts receivable
If you offer credit to customers, you’re well aware that you might not receive money for goods sold or services provided until the due date or beyond. After a week or month, it can be easy to forget about accounts receivable. But if you want to better manage money, you must remember the funds owed to your business and pursue payments.
To help you remember accounts receivable, record them in your books. Create an accounts receivable summary to track receivable totals. An accounts receivable summary shows you which customers owe your business money, the amount due, which customers are past their due dates, and your total receivables.
Although tracking your receivables is essential for smart money management, receiving payments is even more important. You can pursue payments by sending out invoices and late notices to customers. And if your business needs money earlier than the due date, you can offer an early payment discount.
4. Separate business and personal funds
Do you have a separate bank account for business? Even if you aren’t required to separate business and personal funds, doing so is critical to money management. Plus, business bank statements are useful for tracking profitability, reconciling your books, and monitoring spending.
Mixing your personal and business funds can result in disorganized records, leading to overspending and missed growth opportunities.
When you combine funds, tracking withdrawn and deposited business funds becomes difficult, making it challenging to monitor incoming and outgoing money.
If your business and personal funds are in one account, you might be prone to dip into your business funds for personal expenses or vice versa.
5. Time your purchases
To avoid instances of low cash flow, time your purchases. Do not make unnecessary purchases until you have paid your bills. And, wait until you have enough cash on hand to cover new expenses.
You can also time your purchases to decrease your tax liability. Before the end of the year, you might consider purchasing tax-deductible items (e.g., supplies) so you can claim them on your tax return.
6. Create a budget
Putting in the time to create and keep up with a small business budget can simplify the way you manage money. Budgets help you set expense and revenue goals.
Your budget lays out the expenses needed to operate your business. When you know how much you can spend, you can more easily manage your spending money.
A budget also forecasts the amount of revenue your business will receive. If you find that your revenue is lower than budgeted, find ways to cut expenses and increase income. Create your budget by using historical data and by predicting future expenses, such as through sales and payroll forecasting.
7. Manage inventory
Do you order too much inventory, only to have it collect dust in your storage room? Or, are you constantly running out of goods that are in demand, causing you to turn away customers? Improving the way you manage inventory can help you manage money in your small business.
Track how much inventory you have in your business to avoid crossing the fine line between having too much inventory and not having enough. Record inventory purchases and sales in your books and spend time monitoring how much you have on hand before ordering more.
8. Cut costs and increase revenue
Two money management tips are straightforward but can be hard to accomplish: decrease expenses and increase income. If you’re having a difficult time managing business funds, look for ways to cut costs and increase revenue.
Do you know how to control expenses in a company? To cut costs, first analyze your expenses. By looking at current expense areas and amounts, you can scale back and eliminate frills. You can also decrease expenses by shopping around for new vendors.
You can increase revenue by offering discounts, promoting products through email marketing or social media advertisements, adding new products to sell, and establishing refer-a-friend and loyalty programs for small businesses.
9. Have a cash reserve
Putting money management tips into practice can significantly improve cash flow management. But sometimes, the unexpected happens, and you’re left needing to cover an emergency expense.
Keep a small business cash reserve to help you manage money when you’re in a pinch. You can start a cash reserve by opening a business savings account. Be sure to regularly deposit into your cash reserve.
If you want to simplify money management, keep up-to-date accounting books. Patriot’s online accounting software gives you a simple and affordable way to track incoming and outgoing money, monitor receivables, send invoices, and more. Get your free trial today!
