Money is one of the most sensitive aspects of starting and keeping a small business running. Knowing how to manage money in a small business will ensure that the business is sustainable and prevent losses. The business will be able to run easier and more efficiently when the money is being managed properly.
Whenever there is accountability for each aspect of keeping the business running, the business will be easier to improve. Data and statistics from the accounts make it easier to make changes and improvements to the business. The business will be able to make changes to its finances to ensure that it can make progress.
The development of the business will also be determined by how well the business has been managing the money it has been making and the investment into the business.
The main goal of your business is to turn a profit and avoid periods when there is a negative cash flow. Budgeting, setting goals, and keeping track of your income and expenses are all part of managing money for your business.
When the money has not been managed properly, the business will face many problems such as being constantly late on payments, going bankrupt, and not collecting on accounts receivable.
Your business requires enough money to cover all its expenses, and the tips below will ensure that your small business manages its money more effectively.
How To Manage Money in a Small Business
Let us check out the 9 different ways to manage money in a small business.
1. Beware of Deadlines
Deadlines are the guiding factor for many businesses. Completing deliveries on time will ensure that the invoices are sent on time and the payments made promptly. Additionally, beating deadlines gives you more time to work on more orders and ensure that you can reach more customers and offer them all the services they require.
Whenever deadlines are not met, many of the other logistics involved in making payments are also ignored, and you cannot meet your other orders. Additionally, there will be a backlog of payment issues to be addressed whenever you do not meet the deadlines that you had put in place.
Pending orders should also be scheduled appropriately to make sure that your business delivers as expected. The business will keep track of its accounts much easier, and it will not get behind on staying accountable.
Managing deadlines makes the business aware of budgeting and other constraints that might be getting in its way. As a result, the business will make adjustments and changes to its plans and strategy to ensure that the cash flow is regular and uninterrupted.
Delaying and not meeting deadlines means that some of the money will be unaccounted for, which will cause interruptions in the regular and normal working of the business.
Respecting deadlines also ensures that the company has a liquid flow of cash to all the parties involved. Suppliers will be paid on time, and invoices will not be delayed, which will ensure that the business can meet all demands.
Deadlines are a benchmark for the financial performance and stability of a business. They determine whether a business is performing as expected and indicating where there are loopholes and performance constraints in the finances of the business.
2. Monitor your Spending
Data will be very useful for managing money for your business, and when you monitor your spending, you won’t lose track of your cash flow. Anything that is being purchased and payments made should always be recorded to ensure that you are not behind on any payments.
Monitoring your spending is also useful when you feel that your financial performance is not as good as it should be. You will be able to make adjustments where you feel they are necessary, and as a result, your finances will be better managed. Your business will avoid running into losses when keeping track of its expenditure and where its money is going.
When you are aware of your spending, you will control your finances and manage your money easily. Making changes and adjustments where you feel that money is not being spent well will also be much easier.
Additionally, you will be more accountable and responsible for your expenditure which will be crucial to keeping your business alive and running sustainably.
3. Do Not Forget about Accounts Receivable
Even as you monitor your spending, there will be income for your business. All the incoming monies will need to be tracked, recorded, and accounted for—accounts receivable shows all the money your business is earning and indicates your earning revenue. By keeping track of the income, you will be better positioned to manage your business finances.
Any money owed to your business by customers who took items on credit will also need to be accounted for. It allows you to pursue the parties and individuals who have not made payments and ensure that all your finances are kept track of.
Accounts receivable enables you to send invoices to all your customers and reminders when they are past the due date on their payments.
4. Keep Business and Personal Finances Separate
Disorganized records are the result when you mix your personal and business finances. Keeping separate accounts for your business and personal finances will be quite useful for keeping your business finances on track. For instance, you will know when your business is not performing as you would expect it to.
Additionally, the separation of concerns ensures that the money is not mixed, and each account can take care of the responsibilities that it is charged with. Your personal finances might also start getting in the way of your business when you mix accounts.
Accounting is much easier whenever you have your business finances separate. You will be able to track the progress and performance of your business more easily when you do this.
Reconciling your books and tracking profitability is also made easier when your personal and business finances are different from each other. When you have your personal and business finances and funds separate, managing your money will be much easier and more organized.
5. Schedule your Purchases
It would be best if you avoided instances when your cash flow is very low, and for this reason, you should schedule your purchases. Avoid making unnecessary purchases until when your bills have been settled. Additionally, wait until you have enough money to cover new expenses as opposed to paying in bits.
Timing your new purchases will also decrease your tax liability which is a benefit you get to enjoy. Your business money will be easier to manage in this way, and you can make tax deduction claims on your annual returns.
6. Budget your Business Expenses
Set aside the time to create a small budget for your business. The budget will make it much easier to manage money for your small business, and you will also get to set financial goals.
Your small business will be easier to manage and operate when all your expenses are specified in the budget. Knowing how much you can expect to spend will enable you to manage your money better.
In addition, a budget can also serve your business by enabling you to make financial predictions whenever you need to know how much to expect at a certain time. Whenever your revenue is lower than you would have expected, the budget will let you cut down on the expenses and grow your business income.
With a budget, you will be more accountable for all your expenses and control your business’s financial condition. Your business will be guided by the budget, which will also determine your financial performance.
Ensure that you have everything accounted for in your budget to avoid surprises such as not having enough money to pay for supplies. Your budget should be able to take into account unforeseen expenses and surges in market demand.
7. Keep Track of your Inventory
Are you constantly running out of goods that are in high demand by your customers? Do you have enough space to store all your inventory? Make efforts to improve how your inventory is managed, as this will ensure that all the money in your small business is properly managed.
Always be ready to handle drops in your inventory and ensure that your supplier or manufacturer is informed on time whenever you run out of products.
There is a fine line between not having enough to meet demand and too much inventory. Keeping track of your business inventory will enable you to monitor this and ensure that you know what you have available before making orders for more.
As such, you will avoid unnecessary expenses and spending for your business and be ready for any surges in demand from your customers. You will be ready for the customers’ demand, and supplying them will be much simpler.
Your inventory determines the cash flow of your business, and when it is properly accounted for and kept track of, your business will be able to manage money better.
8. Reduce Costs
Cutting down on costs ensures that you are in a better position to grow your revenue. Whenever you are faced with challenges when managing your business funds, look for ways to reduce the costs.
Cutting down on your expenditure will enable you to increase your revenue, keeping the business sustainable and performing as you would have expected. A business that does not have massive expenses can also profit by looking for better suppliers, improving the delivery and supply logistics, among other changes.
Revenue can also be grown by providing discounts to your customers, marketing, and increasing your product range. When you offer more products for sale, customers will be more interested in your business, contributing to greater revenue for the business.
9. Keep a Reserve of Cash
The unexpected is always bound to happen, and as a small business, you must be ready for financial emergencies. A cash reserve can be an effective way to take care of any emergencies and unexpected events in your business.
The cash reserve will handle the unexpected costs and ensure that your business can continue operating. The reserve of cash is not used unless the conditions are dire and the fund is necessary.
Additionally, the cash reserve will cushion your business when the surrounding conditions are tough and challenging. With the additional stash, your business will be able to sustain itself through the worst of times and ensure that it can thrive even in harsh business and economic conditions.
A cash reserve will keep your business running even when it is being faced with insurmountable challenges, which will allow it to survive the worst conditions. Setting aside the money will keep you running in the event of disasters, and you will be able to take on any tough conditions that might spring up in your business.
Make regular deposits into your cash reserve to enable it to grow, and whenever you need to dip into it, you will have enough money to keep your business running. Your business will be able to survive all kinds of conditions when it has a cash reserve to rely on during its worst moments.
Ensure that you keep track of the reserve and keep making deposits regularly to keep it sizable and able to take care of any unseen eventuality in your business.
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Money management is one of the very important aspects of keeping a small business running. Even when the business operates on a small scale, keeping track of its finances and managing its cash flow is very important.
A business that can manage its money better will run for much longer and without any interruptions. Additionally, the business will also be able to render better services to the customers, contributing to a better relationship with them. A business that keeps track of inventory will meet customers’ demand which keeps them with the business.
Additionally, a business that keeps track of unpaid invoices will send reminders and ensure that all accounts receivable are tracked. Being accountable is important for all businesses, and small businesses will sustain themselves when they are keen on their expenditure and income.
Bijay is an entrepreneur and start-up founder having more than 14 years of IT industry experience. He is the co-founder of TSInfo Technologies, a SharePoint development company.
A dedicated professional and very passionate about public speaking and also wrote thousands of technical blogs in various technologies. He also wrote a lots of blogs on entrepreneurship, investment, startup, business, manage money tips, etc.