Managing finances for your small business can be a time-consuming and a daunting task. But that doesn’t mean that managing finances isn’t important. Financial mistakes are the most common in the business world. What’s more, financial mistakes, even the small ones, have the potential to ruin your entire business. That’s why it’s very important to manage your finances well and ensure your small business favors financial stability as well as security.
As a business owner, there’s a lot you can do to help your company thrive financially. That means that it’s up to you to make the right strategic decisions regarding your company’s finances. It also means you don’t have to be a financial expert to know how to manage your company’s financial decisions. All it takes is a bit of effort to ensure your business is operating as it should. That being said, here are a few actionable tips for managing your small business finances.
Create a budget for small business finances
Creating a budget is the first step in managing business finances. Budgeting allows you to set aside funds for essential expenses and investments while also allowing you to make financial forecasts. The best way to create a budget is to determine your sources of income, including sales revenue. Moreover, determine the fixed expenses your company has, such as salaries, bills, taxes, operating costs and find a way to reduce them.
In addition, include variable expenses, such as overhead costs, commissions, one-time purchases etc. After that is said and done, you can put it all together to develop a balance sheet, which will include assets, liabilities, equity and financial statements. That way, you can easily analyze your company’s financial situation and develop a budgeting plan for a specified time period. When you have a budget to guide you, it becomes so much easier to manage your small business finances.
Having extra money from profits and revenue means you can invest in something that will boost your incomes and business finances. However, business investments don’t have to be focused solely on growth opportunities and business improvements. That’s very important too, but if you’ve already supplied your business with everything that’s required, you can consider other investment opportunities as well.
For example, you can invest extra money into an emergency savings account or you can monitor the gold price to determine the best time to buy gold, should you chose that alternative investment as a hedge against inflation. Stocks, bonds and real estate investments are also an option if you wish to diversify your investment portfolio. In any event, saving money for emergencies or attempting to maximize your ROI is always beneficial for your business financial management. The main reason is that you’ll have an option to financially support your business operations should the need arise.
Focus on your cash flow
Cash is the most liquid, and thus the most important business asset you should focus on. Without cash, no money management techniques will save your business from financial difficulties. The main reason cash is so important is that you can make immediate investments and cover urgent expenses with cash. Let’s say you have to pay $5,000 for salaries, bills and taxes. If you have cash, you can do it right away.
However, if you have a liquid asset such as a vehicle that’s worth $5,000, for example, you’ll have to find a buyer first and negotiate a good price for it, which is rarely the same price as the asset’s worth. Simply put, without cash, you’ll have financial troubles. That’s why it’s important to ensure your small business has positive cash flow. Cash flow is determined by calculating the money coming into your company via accounts receivable and the money going out of your company via accounts payable.
Pay your dues on time
Every small business has some kind of debt. If you don’t have any debt at the moment, you can easily slip into one if you don’t manage your finances well. Paying dues on time is one of the best ways to avoid debt that can hinder your business. For instance, if you don’t pay your bills on time you’ll end up having to pay more due to late fees and additional expenses. Also, don’t forget about taxes. Government policies are strict about the taxation of small businesses and if you avoid paying taxes, you’ll end up in even more financial and even legal trouble.
Moreover, pay off your debt as soon as possible to avoid paying for additional interest rates. If you have multiple outstanding debts you have difficulties paying off, you should consider debt consolidation. Basically, debt consolidation is about taking a loan that will cover your other smaller loans and consolidate them into a single, larger one. However, this type of loan has benefits, such as better interest rates, more pay off time and suitable pay off conditions.
Managing your small business finances doesn’t have to be very difficult. If you focus on key financial aspects and make an effort to ensure financial stability for your company. You can easily manage business finances on a long-term scale. Also, don’t hesitate to hire or consult with an accountant if you think that you won’t be able to manage finances on your own.