Six finance tips for small businesses to grow efficiently
If we have to pick one key element crucial to a small business’s success, it would be efficient financial management. It is because startups and small ventures have limited finances to meet ever-increasing expenses.
Small business owners often struggle with managing finances. In many cases, a small venture’s success is based on the skills you bring to the manufacturing or service process. Managing your business finances can be a chore if you have little experience. You might have a lot to invest, but your business is bound to suffer significant losses if you are not skilled in managing finances efficiently.
In the U.S., 82% of small businesses fail. The primary reason for their failure is inconsistent financial management. Educating yourself is the most important contribution you can make (apart from money) when starting a venture. There is no condition for you to be an accountant or a numbers-savvy person to start a company. However, knowing the fundamentals and principles can save you from financial loss, which can eventually lead to your company’s failure.
A small business owner can avoid failure by understanding the basics of managing finances, such as accounting, loan applications, and reading financial statements. Staying organized and gaining knowledge are the most critical components of healthy financial management.
What is financial management?
In simple terms, financial management means handling your business’s financial activities through planning, organizing, and budgeting. One could also define it as a business function that allows you to use available resources successfully for a better return.
Learning about financial management and its application to grow your small business efficiently has never been easier. Many universities now offer masters in accounting online no GMAT required, and you can complete your post-grad degree without any hassle. Nowadays, it does not matter if you are a finance graduate or have no background in finance. This online program empowers you to avoid negative cash inflow by creating a sound money management plan. Inadequate money management can lead to problems such as late payments, running out of cash, and not collecting receivables. Hence, after completing this course, you will have immense knowledge of financial management so that you can take control before expanding your team.
Financial management tips
The following are some tips you can follow as a small business owner to manage your finances and keep your business operations running seamlessly.
Meet the deadlines
It may not seem significant, but making payments within due dates can save you from added interest and late fees. You need to stay on top of bill payments, vendor payments, credit card payments, or business loan repayment because missing any of these can ruin your credibility in the market and give you major setbacks with harsh repercussions.
You can note down all the deadlines and mark them in a calendar. Make a payment schedule, set reminders, or schedule it for auto payments. Consistency in your financial payments will help you evaluate your expenses and allow you to create efficient budgets.
Have separate accounts
Having separate personal and business accounts is critical because having a single account can be troublesome when you pay taxes and cannot distinguish between personal and business expenses. Therefore, make sure you do not make or receive business-related payments in your personal account and vice versa.
You can make the accounting process easier by keeping personal finances separate from your business finances. When all your business-related transactions take place in a designated account, you won’t have to review your bank statements every month to highlight the business transactions.
Keep track of your expenses
It is widely believed that a lack of cash is one of the leading reasons businesses fail. Hence, by tracking business expenses daily, you can control costs and gain an understanding of your expenditures.
When it is time to file taxes, having meticulous records will save you a lot of trouble. Expenses like business lunches, meetings, cell phone bills, and data costs are tax deductible that can result in a refund of your money. But It is only possible when you track and categorize business expenses.
Monitoring spending also helps you cut down unnecessary costs like printing expenses. You can save money by going paperless, which is also environment-friendly and saves the costs of purchasing office supplies such as ink, printer, paper, staples, etc.
Investing in growth
Keeping track of and understanding expenses is essential because it allows you to invest money in better opportunities and increase profitability, which can only be accomplished with effective financial management.
One way of investing in growth is to invest in employees’ training and upgrading their skills, which will ultimately add value, improve productivity, and increase your profits.
Understanding cash flow
A good money management strategy can make a difference in cash flow management. When you encounter challenges managing your money, a sound strategy will help you keep a small business cash reserve.
In short, managing the cash flow of your business is important. It helps you notice inconsistencies by reviewing and comparing financial statements from previous years.
Your primary goal for a reliable cash flow is to collect receivables at the earliest. You can negotiate credit terms or offer discounts and encourage your clients to pay sooner. Similarly, you can delay payments to creditors and hold cash for a longer period.
Improve inefficiencies and curtail expenses
Overheads can become an issue for small businesses if left unattended. It is significant to use resources efficiently by automating routine tasks. For example, credit card fees and other processing fees can increase overhead costs.
Consider online financial options that specialize in dealing with small businesses and provide hassle-free services by charging minimal or no processing fees. Streamlining bill payments and payroll management through small business banking can save you money.
Furthermore, you need to review your working space. Using a co-sharing space and adopting a remote working culture can benefit your small business by saving overheads.
However, while considering cost-saving options, you need to ensure it does not affect the performances of employees and the quality of your product/service.
It is crucial to have a business organization strategy if you want to keep your finances under control. Managing the finances of your small business depends on your internal financial protocols. Small measures like reviewing financial statements and considering better financial solutions can increase profitability. Besides, monitoring and tracking expenses can help you mitigate risk and improve your financial position for better decision-making.