One thing concerns every company- managing their money. To survive a volatile economy, especially during this pandemic, and to withstand industry competition, proper financial management is essential. This can be very challenging for small business owners. One needs to exercise caution in their financial decisions right from the beginning. As you know, starting a business takes more than just a good idea. The skills you bring to making your product and providing your service are also a key factor to the success of your business.
Aside from this, you need a proper financial structure that generates profit. If you have very little experience in managing business finance, you could slip into bad financial habits that could harm your business in the long run. You need to educate yourself and acquire money management abilities to turn your venture into a success story. These skills include simple bookkeeping and accounting tasks like balancing books and drafting financial statements. On top of that, you need to stay organized so you can properly track your financial transactions throughout the year.
However, not all business owners are adroit at handling finances. To help you, here are some tips to help you ensure that your finances are in tip-top shape.
1. Invest in Educating Yourself
One of the first things you should do is learn about the various aspects of finance. Familiarize some accounting and bookkeeping terms. Learn also how to read financial statements. This report gives you the big picture about your money, where it came from, where it is and how it is being used. A financial statement contains details about the cash flow statement, income statement, balance sheet and shareholder’s equity.
The cash flow statement is a document that analyzes your business’ operating activities, investments, and financial inflow and outflow.
The income statement reflects the business’ revenue within a specific period of time.
The balance sheet gives information about your company’s assets, liabilities and shareholders’ common and preferred share or equity.
2. Separate personal and business finances
Keep your personal and business finances separate. Don’t use your personal credit card for your business expenses. If you must, get a separate card for exclusive business use. With this, you can easily track your business expenses. Get also a savings account solely for your business. Put a certain amount of money on it from each payment you receive so you can build a considerable amount that you can use to pay taxes and to reinvest in your business if time comes that you would need to expand.
Set also a salary for yourself. By doing so, you will avoid spending your business income for your personal expenses.
3. Manage costs and keep your expenses in check
It is essential for small business owners to be tight-fisted when it comes to costs and expenditures without compromising customer satisfaction. Every business experiences two types of cost- fixed and variable.
Fixed cost comes whether or not your business is making money. Most operational costs are fixed. They come on a specific time frame and can be easily estimated. These costs are easier to monitor and manage. Estimate your cost, set a budget for it and put a little allowance so you will have a little wiggle room when costs rise, and your budget won’t be too affected.
Variable cost offers scope in savings. With this, you have the option to look for the best price. You can also negotiate or make deals to lower this cost. You can buy in bulks or ask suppliers for discounts. Example in your bookkeeping, instead of buying expensive software and hiring an in-house accountant, you can cut cost by shifting to Cloud based software and outsourcing services.
Preparing emergency funds is also crucial. What do you do when your machine suddenly breaks down or a natural calamity or a pandemic forces you to temporarily stop operation? You need to have funds for unforeseen events. You can also get insurance to prepare for unexpected costs.
4. Have a good billing strategy
One way to ensure the consistency of the cash flow in your business is to make sure that your clients or customers pay on time. Devising an invoicing system or billing strategy may just be the key to get on time payments and keep your cash flow healthy.
5. Spread out tax payments
Some small business owners find it challenging to save for quarterly tax payments. If you have the same struggle, try spreading out your tax payments by making it monthly. In this manner, you can treat it like a monthly operating expense.
6. Invest in Cloud Based Accounting Software
While regular accounting software can also effectively manage your books, it will not offer you the kind of convenience a Cloud based software can. Accounting based software provides you with real-time insights and allows you to store, update, track, and access data anytime and anywhere. With Cloud based software, you can conveniently access your data. It is dependable, error-free and hassle free.
If you are looking for a Cloud based accounting software and service provider, ACT Bookkeeping Group can help you. Our team of experts can help you realize your financial position and plan for profit using a range of Cloud based tools. Call us and book a free consultation today.
7. Monitor and measure performance
It is very important that you monitor the movement of your money, especially when large amounts are involved. Check your company’s financial performance now and then and compare it to previous financial statements. This will help you project your future revenue, expenses and cash flow and make informed financial decisions for your business.
8. Hire professional help
Everyone needs help, even large companies. For small business owners, it pays off to engage the services of an expert. They can help you determine the status of your business and where it is heading by using and analyzing your financial data.
9. Plan ahead
It may sound like a cliché, but failing to plan is really planning to fail. Set at least a ten year financial goal and break it into smaller yearly goals.
While running and owning your own business can be exciting, it can also be nerve wracking. Protect your business from poor money management by keeping the above tips in mind.