Mismanaging cash flow is not something that any business owner wants to experience. This article offers money management advice for small business owners who are struggling to manage their funds.
What is financial planning for small business owners and entrepreneurs?
Money management involves managing your business finances by budgeting, setting financial goals, tracking income and expenses, and investing.
A sound money management strategy will help you avoid negative cash flows and keep your business on the right track for profitability.
If you don’t manage your money well, it can lead to issues like late payments, money running out, and failure to collect on your accounts receivable.
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Cash the Executives tips
You need to have enough money in your business account to cover all expenses. Use these nine tips for managing money in your small business.
1. Keep track of deadlines
You might not have enough money on hand if you don’t keep track of your bills, like those for accounts payable, credit card payments or business loans. You could also be charged late fees and interest for not knowing when your bills are due. Your business credit may suffer, as well as relationships with lenders and vendors.
Keep track of deadlines to avoid missing payments. Set reminders to help you stay on track. Put due dates in a calendar, whether it’s on paper, your phone or computer, to get you on a regular payment schedule.
2. Monitor your spending
Do you know the amount of money you spend each day, per week or per month? You could end up with bills you don’t want if you don’t keep track of your spending. Failure to monitor your spending can lead you to overspend and misappropriate funds.
Most business owners maintain multiple accounts. For example, they may have a checking, a savings, and a credit card account. Be sure to keep track of your account balances by knowing how much money you spend or withdraw from each account.
You can easily cover small costs with your business debit card or credit card. Small expenses can add up. A new coffee machine in the break room, a little lunch for staff… You could find yourself with a large bill if you don’t monitor your spending.
You should include uncashed checks in your spending monitoring. You don’t have to cash a check immediately after writing it. You could find yourself with an overdrawn bank account, and incurring overdraft charges, if you fail to keep track of your spending.
Manage your accounting books to keep track of your expenditures. Accounting transactions can be recorded using a simple program. You can monitor your spending easily when you keep a record of all expenses.
3. Do not forget your accounts receivable
You know that if you give credit to your customers, it’s possible you won’t receive payment for the goods or services you provide until after the due date. It’s easy to forget accounts receivable after a month or a week. If you want to manage your money better, you need to remember to pursue the payments owed to you.
Record them in your book to help you remember. To keep track of receivables, create an accounts receivable summation. A summary of accounts receivables shows which customers are owed money by your business, how much they owe, who is past due and the total amount.
Receiving payments is more important than tracking receivables. Sending invoices or late notices can help you get paid. If your business requires money before the due date, then you can offer a discount for early payments.
4. Separate your business and personal finances
Do you maintain a separate account for your business? Money management is important even if it’s not required. Business bank statements can also be used to track profitability, reconcile your books and monitor spending.
If you mix your personal and business finances, it can lead to disorganized records and overspending.
Tracking withdrawn and deposited funds for business becomes more difficult when you combine them. This makes it harder to track incoming and departed money.
You may be more likely to use your personal funds for business expenses, or vice versa, if your personal and business funds are combined in a single account.
5. Plan your purchases
Plan your purchases to avoid experiencing low cash flow. Wait until you’ve paid all your bills before making any unnecessary purchases. Wait until you have enough money to cover any new purchases.
You can time your purchases in order to reduce your tax liability. You might want to purchase tax-deductible supplies (e.g.) before the end of the tax year so that you can claim these items on your tax return.
6. Budget your finances
You can manage your money more effectively if you take the time to develop and maintain a budget for your small business. Budgets can help you to set revenue and expense goals.
Budgets outline the costs required to run your business. Knowing how much money you have to spend will help you manage it better.
Budgets also predict the revenue that your business will generate. Find ways to reduce expenses and increase revenue if you find your business’s revenue is less than what was budgeted.
7. Manage inventory
You order too much stock, but it just sits in your warehouse collecting dust. Are you always running out of products that are in high demand and having to turn customers away? You can manage your money better in your small business by improving the way you handle inventory.
Keep track of your inventory to ensure you don’t cross the line between too much and not enough. Keep track of your inventory sales and purchases in your accounting software and monitor how much stock you have before ordering.
8. Reduce costs and increase revenue
It is easy to understand but difficult to implement two money management tips: reduce expenses and increase your income. If you are having trouble managing your business finances, try to find ways to reduce costs and increase revenues.
Know how to control costs in an organization? Analyze your expenses first to reduce costs. You can reduce and eliminate unnecessary expenses by analyzing your current expenditures. By shopping around, you can reduce your expenses.
Small businesses can boost their revenue by offering discounts, advertising products via email or social media, adding new items to sell and creating loyalty and refer-a friend programs.
9. Cash Reserve
Cash flow management can be improved by implementing money management strategies. Sometimes, however, unexpected events occur and you may need to cover an urgent expense.
You can manage your money better when you have a small cash reserve. Open a business saving account to start your cash reserve. Regularly deposit money into your cash reserves.