TOP 7 FINANCIAL MANAGEMENT TIPS FOR SMALL BUSINESSES
Two companies, two talented workforces, two unique products or services, and two savvy leadership teams. But why does one business thrive while the other struggles to survive? Three words; smart financial management. There is no denying that passion, dedication, and relentless hard work are key ingredients of a successful business. But you also have to be on top of financial management to make your start-up a success story.
As a small business owner, here is what you should do to manage your finances like a pro:
- Educate Yourself
First and foremost, you must learn about the numerous facets of finance. You may start with reading financial statements. They disclose everything you need to know about your money, including where it comes from, how many times it changes hands, and so on. The financial statements contain four key documents: an income statement, a balance sheet, a statement of cash flow, and a statement of shareholders’ equity.
The income statement summarizes the revenue generated over a given timeframe. The balance sheet reveals details about the liabilities and assets. The cash flow statement provides a detailed analysis of the business operations, investments, and financial input and output. Lastly, the shareholder’s equity statement shows the amount of money raised by the corporation through preferred and common shares. Once you get your head around financial statements, you will have a better aerial view of the company’s finances and are more likely to make informed decisions.
- Take Professional Help
It is common for entrepreneurs to get stuck in their finances, especially during the tax season. The best strategy to address such a situation is to seek financial advice from experts. Their knowledge and experience can go a long way in providing you the peace of mind. Hiring an expert might be a smart move, even if it is just for a few hours a week. By diving into the key financial insights, they will be able to determine your company’s current state and its future course.
- Automate Bill Payments
Manual bill payment consumes considerable time. A smart business owner would instead want to spend that time on tasks such as acquiring new customers, discussing marketing tactics, getting briefings from the manager, etc. Streamline your workflow by switching to online banking and setting up autopayment for your bills. As a result, you will observe higher productivity and keep late payment penalties at a safe distance. Also, it will provide a solid platform to tap into full-fledged accounts payable automation when the company expands.
- Leverage Loans
Many small business owners believe that loans lead to a debt trap. Well, this cannot be any further from reality. Business loans enable you to manage unforeseen costs. However, regardless of how hard you try, sometimes the market’s ups and downs could make it extremely tough to fulfill working capital requirements.
Typically, getting a loan for a small business is a hassle-free process. Lenders will make sure that you keep up with minimum paperwork. In addition, there are no collateral requirements for many small business loans, and they are available at competitive interest rates. On top of that, you have the freedom to put the money toward fulfilling various demands like paying utility bills, purchasing inventory, or giving salaries to employees.
Sometimes, lenders offering the finest business loans may be the riskiest to deal with. So before signing the dotted line, here are some of the red flags you need to look for:
- The lender does not examine your credit score
- The lender does not have a physical location or a professional-looking website
- The lender is not disclosing loan fees, making it difficult for you to crunch numbers about how much the financing will cost you in the end
- Track Spending
Do you have an estimate of how much money you spend daily, weekly, or monthly? If not, you may have excessive credit card debt and other liabilities. You can easily pay for small expenses with your company credit card, debit card, or cheques. However, the costs of little things like buying some snacks for the employees or a new coffee maker might pile up over time. If you fail to keep a close check on your expenditures, you risk being confronted with a hefty bill that may not be prepared at all.
Monitoring every single expenditure used to be a tedious task. But things have changed now, thanks to cloud accounting software. It enables small business owners to record everything on the go. In addition, the software integrates with your bank and credit card accounts to provide real-time updates on your spending. Since the accounting software will save you from printing receipts of every transaction you make throughout the day, you can spend valuable time on essential tasks.
- Prioritize Inventory Management
Do you buy too much stock to have it sit in a storage area, gathering dust for months? Or do you regularly run out of popular products, which forces you to turn away potential customers? Whatever the scenario may be, small businesses can save money by improving their inventory management practices.
Do not cross the narrow line between overstocking and understocking your items. Make sure that your books accurately reflect the purchases and inventory sales. Always spend some time figuring out the current status of the inventory on hand before placing additional orders.
- Be A Smart Negotiator
A good deal may necessitate a little digging on your part. Always bargain a better price with the vendor or supplier before purchasing from them or signing a contract. Do not forget to consider things like late payment penalties and grace periods. Getting extra 30 days to pay off your bill can save you more money than receiving a 5% discount upfront.
Entrepreneurship is exciting as it comes with several perks. However, running a small business might be a source of anxiety, particularly regarding managing finances. Do not let financial mismanagement hurt your business. Follow these pointers to ensure the success of your venture.