Small business owners will inevitably face various financial challenges from time to time, but effective money management can be crucial to the success of any company.
The services of a good business accountant are often invaluable, but effectively managing your cash flow is equally as important. We’ve put together ten top money management tips to help any small business.
- Stay on top of your finances
Having an in-depth understanding of the business’s financial movements and relevant data is imperative for money management in a small business.
Your accountant will help you keep on top of the books, but be sure to hold regular meetings with them and make it your responsibility to keep track of all your business expenses, which can quickly mount up. Reviewing these costs every so often and working out what is and isn’t essential can also help you better manage the finances and gain a stronger understanding of where the money is going day to day. Regular financial reviews are essential for long-term growth planning and keeping abreast of where your business is financially.
- Forecasting
Another top tip for small business money management is to make financial projections. Perform a solid and detailed business forecast for the next twelve months ahead, and update it as frequently as possible.
Having a strong idea of where the business is going in the future will help you prepare for spikes in sales or any costs that come with predicted business growth and expansion. Forecasting will also help you identify when the small business should expect a surge or decline in sales, when payments are due in and out, and all in all help you manage the business’s money with more awareness and understanding.
- Avoid expensive credit and mounting debts
Most businesses need to borrow money at some point, whether it’s during its initial startup phase or later down the line. However, it’s important for business owners to go into credit agreements with their eyes open, and be aware of any stipulations that come with them. Borrow within the company’s means and only take on debt that is absolutely necessary. Small businesses can crumble under the weight of high-interest rates too, so shopping around for the best deal is a good idea for effective money management.
Debt reduction should also be a priority and keeping abreast of debt repayments is vital if you want to stay on top of the business’s finances. Ensure you know when payments are due and pay creditors on time to avoid late fees and any further unexpected charges, and to prevent debts spiralling out of control.
- Keep your outgoings under control
Keeping an eye on your outgoings and reducing your overheads and any unnecessary expenses is crucial to good money management in a small business. Finding a cheaper workspace, shopping around for utilities, cutting your bills in half and negotiating with vendors before committing to purchases will all help keep the outgoings under control.
- Keep your business and personal banking separate
Blurring the lines between personal and business finances is a recipe for disaster when it comes to money management. Ensuring you keep the two separate is essential in order to keep track of your company’s expenses and avoid having to account for any unexplained losses. This way, you’ll also be able to better gauge how much money you have coming in and have a better insight into how well the business is actually doing.
It may be tempting, but avoid borrowing from one to pay the other and keep in mind that any money being brought in should be used to maintain and grow the business. Using your own personal money to help out a potentially struggling business may land you in hot water both personally and professionally down the line, so don’t take the risk. If you do find the need to make a personal loan to the business, keep a record of everything and be sure to account for where it is going and how it is being spent.
- Have an emergency fund
Forecasting can help small businesses predict when they might suffer from a decline in sales, be it due to increased outgoings or seasonal spikes in demand. As such, it’s a good money management tip to have a backup contingency fund that you can use during these times, or to fund any unexpected costs along the way. This will help avoid having to take out more credit and adding to business debts or sell any investments before they’ve made a profit.
- Rent, don’t buy
Another good money management tip is to restrict the amount of money being taken out of the business in lump sums. Restricting purchases to those that are business critical and opting to spread out payment over a number of months will help you better manage the business’s finances. Leasing equipment rather than buying it outright will help avoid maintenance costs and can also help ensure you are only paying for the use of it for as long as it’s needed.
- Negotiate with clients and vendors for a better deal
Nurturing relationships with suppliers and vendors can make it easier to negotiate for a better deal. Establishing a good rapport with your suppliers may mean they are more likely to negotiate payment terms and grant grace periods, which can help small businesses better manage their money.
- Draw up contracts with clients
Drawing up contracts with clients will not only hold the client accountable for the money they owe, but it will also help your small business manage its money more efficiently. Knowing exactly when a service is due to be completed and when money is owed can help balance the books and will give you peace of mind when it comes to receiving payment for services rendered.
- Chase your invoices
Invoicing may feel like an inconvenience, but it’s essential for small businesses to keep on top of for effective money management. Be sure to send out invoices to clients as soon as a service has been delivered, set payment dates and terms to ensure payments don’t get lost or forgotten, and always have a follow up procedure. This is vital in order to recoup any
outstanding balances owed to you by clients.
