Financial management for small businesses involves moving cash efficiently through the product life cycle; hence, managing the turnover ratios of raw materials through finished goods to sales; while also collecting the receivables and starting over by purchasing additional raw materials for production. It is important that business owners educate themselves by understanding basic accounting tasks or financial management.
Applying for a loan, and writing accounting entries, asides staying organized, is a major component of sound financial management.
However, finances have to do more than just knowing your business bank account balance. Thus, good bookkeeping is vital for understanding the financial position and cash flow of your business.
Again, it is important to understand what all the financial reports and figures mean in practical terms. The following are few points on financial management for small businesses;
A realistic budget can help you meet your small business financial management goals. Thus, the budget allows you to understand current situations in other to make projections. Compare estimates to actual financial results to determine if you are overspending or making additional income.
Bookkeeping is a process of recording the monetary transactions of an establishment. More so, keeping good financial records can assist you in applying for loans, reviewing business activities, and complying with tax requirements.
Keeping up with your finances can help you reduce and eliminate fraud. Therefore, implement some internal control mechanisms, especially if you have employees. Lack of internal control leads to fraud and theft among employees.
This can get you into legal problems.
Keep a business bank account separate from your personal finances. It will enable you to monitor your income and expenses, and the extraction of business records for taxation purposes. This will also curb unnecessary and personal spending.
Subsequently, it is a good practice to survey your bookkeeping records at least once a month. This will pin point problems and put measures in place to correct them. Consequently, it curtails embezzlement.
If you want to be sure that your business and personal finances are in a good mold, see yourself as part of the business. Hence, you need to compensate yourself just as you pay others. Also, don’t overlook your role in the company and compensate yourself accordingly.
In addition to paying yourself, it’s necessary to put money aside and explore growth opportunities. Likewise, it will help your business move in a healthy financial direction. In the same vein, business owners should always keep an eye on future investment opportunities.
Not being paid for the goods and services supplied will negatively impact the cash flow of your business. On the other hand, if you are struggling to collect cash from certain customers, find creative ways to bill them. Certainly, it is important to maintain a good relationship with your customers whilst doing this.
If your quarterly estimated tax payment is too high, make it a monthly payment instead.
That is to say that tax payments will be treated like any other monthly operating expense.
Periodic measuring expenditure and return on investment give an insight into investments that make sense and which are not worth continuing. Also, scrutinize your spending and how that investment is paying off. If it is not, spend more on the investment that is profitable for your business.
Forecasting helps you to meet your business’s financial goals. Thus, it is a future prediction of your finances, against current statements, to give details of actual results. That is to say, regular forecasts allow for close monitoring of your finances and the development of strategies to curb problems.
Most importantly, adopt cost-cutting measures that will regulate business spending habits. You could reduce the money you spend on office supplies and other practices that will encourage unnecessary spending. Hence, you will only be able to revert to your spending habits once you can control your debt.
To begin with, not every eventuality in business can be provided. You need to reserve some savings you can make use of, when unexpected costs occur. This will reduce your reliance on overdraft anytime you have to cater for unforeseen costs.
Therefore, always make sure to have a minimum amount in the account to cater for such contingencies.
Again, negotiate and ask for discounts when you make bulk purchases. On the other hand, you could team up with other small businesses to make bulk purchases at lower prices. You could also use lower quotes from competing suppliers as leverage to buy products at lower prices.
If you are facing difficulties managing business funds, find ways to reduce cost, and increase revenue. To reduce cost, analyze your expenses first, look at current expense figures, scale back, and revert. Also, decrease expenses by shopping for new vendors.
Here, cut the largest expenses to free up cash flow if your budget is tight. If real estate is your biggest expense, work remotely to curb the situation. Also, if labor is your largest expense, hire staff on a contract basis and not full time.
Soliciting for a loan can be a great way to raise capital to expand your business. However, you must equip yourself with the right information before applying for a loan. There are different types of loans, including working capital loans, franchise loans, commercial mortgage loans among many others. Nonetheless, each type has its pros and cons. Therefore, it is advisable to understand the terms of the loan before signing the contract.
You must be careful and selective about who you work with. Therefore, conduct background checks on new prospects before working with them. Thus, the best thing to do is turn down new contracts based on investigations to save you from irrecoverable debts.
Here, understanding and fulfilling tax requirements is next after having organized your books. Although taxes are often one of the confusing areas of small business finance, failing to pay your taxes is grave. In short, you may face criminal charges or even lose your business if you do not.
Incorporating good invoicing practices into your everyday accounting procedures is important. Also, beat deadlines in sending out invoices as soon as you deliver goods or services. Remember, the shorter your payment terms, the less likely it is to forget a payment.
Make a decision when purchasing new equipment, goods, or services. Also pin point hidden costs like; installation, training, maintenance and repairs, insurance, utilities, supplies, and so on. Knowing what to purchase and when to purchase it gives you a heads up in the game.
To an extent, your assets have a bearing on your financial position. Therefore, through managing your asset, you can maximize its use. However, the value of total assets determines the capital you need to match them. Thus, the more the assets, the more capital you will need.
There are a lot of online resources to learn about financial management. Also seek mentorship from the experienced business owners that you know. No one can give you better advice than an experienced person.
Educate yourself about the various aspects of finance. Learn to read financial management- it will tell you all about your money. Hence, you know where it is coming from, and where it is at the moment.
Managing your finances should be a fundamental part of your business strategy. If you want to be a successful entrepreneur, you have to understand the numbers that drive your business. Thereby giving you the basic knowledge you need to keep your business alive and grow.
Good accounting software will make planning, forecasting, analyzing, and managing your business finances much easier. Therefore, it pays to get a software package to manage your books. Numerous software packages can help automate bookkeeping and generate financial analysis.
Accounting software can also reduce the time to enter accounting transactions, manage, and generate financial statements for your business.
Practice makes perfect. Therefore, constantly stay abreast of the ever-changing technology. This guide will get you started and help you balance administering your business financial management, among others.
However, for a more proactive business financial management approach, you have to learn. Enroll in a financial management class.
Tasks like writing up financial statements and executing bookkeeping tasks should be on your fingertips. Also, being able to manage business finances without external help must be the ideal situation. Thus, stay organized on the best results in financial management.
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