11 Finance Management Tips You Need to Grow Your Business
Did you know that 82 percent of business failures are due to poor financial management?
While it’s every business owner’s wish to keep the finances in check, the overwhelming administrative tasks can get in the way, making it an uphill task.
What’s more, it’s common for business owners to be carried away by the revenue fluctuations and end up overlooking other operational costs.
So, how do you keep tabs on your business’ finances?
Here are some simple finance management tips to get you started:
1. Separate Your Business From Personal Finances
Maintaining a barrier between your business and personal finances saves you the cash crunch caused by mixing the two. This means that you’re not supposed to delve into your business savings when you’re personally low on money.
Similarly, if your business is in an economic crisis, it’s advised that you refrain from investing your personal funds to avoid further financial constraints down the road.
To ensure the two finances don’t mix, set a separate budget for each. You should also have separate bank accounts for your business and personal finances.
2. Keep an Eye on the Expenses
If your business is on its early stages, try aiming at lowering your expenses. This may mean being a little frugal on how you spend your business revenue. For instance, it makes no sense buying a mahogany desk when a plywood one would do just fine.
For larger expenses such as rent and other utilities, you can plan to pay them a year in advance. This not only saves you from the financial burden of accumulated bills but also ensures your cash flow stays put even in the slowest months.
3. Control Your Inventory
One of the most effective financial management tips for small businesses is simply managing inventory. This ensures that you don’t buy excessive stocks that can strain the cash flow of your business. It’ll also help lower insurance costs as having excess stocks results in higher insurance premiums.
Likewise, insufficient stock can also result in lost sales and even hurt your customer relations.
To manage your inventory, anticipate high seasons and strive to maintain better communications between the involved departments. Checking your inventory regularly can also help in monitoring different stocks.
4. Manage Debts
It’s common for business owners to apply for loans to save their business in times of financial crisis.
However, it’s good to be cautious of how much you borrow along with the terms of the loan. Secured loans, such as this secured option, have lenient terms and interests.
You should also avoid carrying forward debts from one financial year to another. This means that you have to pay your debts on time.
On the same note, you need to effectively manage your debtors by reassessing your contracts and credit terms with them. This ensures that they don’t take so long to pay to the point that it negatively impacts your cash flow.
5. Automate Your Account Receivable Process
Dealing with account receivables can be daunting especially if it involves clients who take too long to pay for goods. For this reason, you may consider automating the account receivable process.
When invoices are delivered electronically, it speeds up the billing and collection processes. Also, the automation of account receivables helps manage huge volumes of invoices as well as eliminates the risks of losing them.
6. Negotiate With Vendors
It’s always recommended to try and negotiate with your suppliers for a bargain. This will save you money when buying bulk orders and even land you better payment terms and discounts.
However, to be successful in negotiating with your vendors, you need to have a good payment history. This way, it’ll be easy for the vendors to trust you.
7. Design Cash Reserves
Whether your business is a start-up or an already established organization, you need to create a financial cushion to fall back to in stringent times.
While your business investments may be relied on, it’s better to have liquid and sufficient cash in store. Investments tend to take long to be liquidated which may not be convenient in the event of unforeseeable financial turmoil.
8. Have an Opportunity Fund
Having an opportunity fund allows you to invest in other streams of income such as stocks and bonds, thus diversifying your portfolio. In addition to generating more income, these investments can also act as your retirement plan.
Nevertheless, to make a wise decision on which investment plan is beneficial to your business, pay attention to the return on investment (ROI). If the investment can’t give good value for your initial capital, it’s not worth putting your money into it.
9. Monitor Your Books
Most business owners rely too much on their bookkeepers for financial records. This denies them the opportunity to understand their finances better.
Even if you trust your bookkeeper, you have to schedule time to monitor your books. This allows you to create realistic financial goals for your business since you’re familiar with the cash flow. It’ll also discourage embezzlement of funds and wasteful spending.
10. Organize Your Documents and Receipts
Keeping a well-organized record of your business’ financial documents and receipts is crucial in realizing an effective financial management plan. It allows you to easily keep track of your money and monitor spending habits.
You’ll also have an easy time when filing your tax returns.
11. Enroll In Accounting Classes
Investing time off your busy schedule to take up some accounting classes. Accounting skills equips you with knowledge on how to best manage your business finances.
Even if you have an in-house accountant, learning basic accounting processes can help you make big money-related decisions, instead of entirely depending on your accountant.
Better Finance Management Equals Increased Productivity
To boost your business’s productivity, it’s crucial you prioritize good finance management practices. They’ll prepare you to make smart money management decisions for the growth of your business.
Speaking of growth, you may also want to check out these essential survival tools for your business.