No matter what type of business you own, at the end of the day, it is not what you make, but what you keep. Moreover, if you run short of money, you either go out of business or into debt with all the associated fees. This is why small business owners are under significant pressure to cut expenses and manage their money closely. Thankfully, this can all be done by following sound money management principles and correcting mistakes.
Here are five everyday money management tips all business owners can implement.
Set a Realistic Budget
It is amazing how many small businesses create cash flow plans and budgets based on best-case scenarios. Another mistake is failing to account for critical expenditures and having working capital run dry. The solution is to set a realistic budget. If you’re overly-conservative, then you’ll have more money to save as retained earnings, use to pay down debt, or invest in the business.
Separate Your Personal and Business Finances
It’s also essential that you separate your business and personal finances. Even if you pay personal and business expenses from the same checking account, you should record the transactions separately. You need these financial records to generate correct reports on cash flow and profitability whether you’re applying for a loan or appealing to an investor. These separate transactions also make things much easier at tax time.
Run the Numbers
Don’t run your business based on how you feel it is doing. Run the numbers. Track your income, profit and growth. Project your future revenue, expenses and cash flow. When you have the hard data, you can make the right decision based on real information. If cash flow is too tight, you know to cut expenses before you go into the red. Better yet, know which products or services are the most profitable or have the highest return on the investment so you can focus on what matters most to your business.
Get Organized
While your business may consist of a pile of records on your dining room table, you need to get organized. You need to know where invoices are so that you can make sure you pay your suppliers and get paid by your customers. You could use services like Deluxe Financial to accelerate the order-to-cash process with AI enabled payment processing, helping you to get money faster and ensure you get paid. Regardless of what tool you use, don’t overlook accounts receivable management. Waiting to get paid can put a crimp in your cash flow.
Be Careful with Credit
Whether you borrow money against your inventory, take out a line of credit, or accept a capital loan from a silent partner, be careful with credit. You should always know exactly how this borrowed money and the way it is spent will grow your business.
Perform a risk-reward analysis of every type of debt you incur so that you don’t have to close up shop if you miss a payment. This should be seen as a critical form of risk management. Shop around. Verify that the loan interest rate is reasonable, and that the terms will promote repayment. In this vein, never use credit cards to pay the bills.
Final Thoughts
These tips can help any business owner better manage their money, no matter what industry they’re in. Know that you cannot succeed long-term without a sound approach to financial management, so make sure that you make the proper adjustments and commit to your new plan.
