Managing finances for small businesses is no easy task. However, it is necessary to know the state of financial affairs front to back to ensure smooth cash flow. Every company aims to stay on top of finances to avoid unforeseen debts and have enough money to invest in and grow the business.
Almost 60% of small businesses have reported how challenging handling cash flow is. In addition, 32% of small businesses are either unable to pay vendors, pay themselves, or payback pending loans or their employees due to cash flow issues. If you fail to maintain proper finance management, building a profitable business will remain a far-fetched dream despite your product or service quality. Alex Chriss, general Manager, Small Business and Self-Employed, commented at Intuit –
“Every day, small business owners fight to deliver amazing products and services for their customers, but – with 50 percent of small businesses going out of business within five years of opening their doors – the odds are stacked against them.”
It is not always easy to maintain a perfect balance of money in and out. On top of that, ensuring the expenses do not exceed revenues or profits is another big challenge for small businesses. The impact of negative cash flow on small businesses is profound. If you don’t have enough experience managing business finance, here is a comprehensive guide for you.
Make business financial planning your priority
Other than managing your finances, budgeting, forecasting, accounting, tax planning, and risk management should be crucial aspects of your comprehensive financial plan. However, if you want to gain a deeper insight into the business’s performance, you must not hold off on analyzing financial statements and accounting reports. Whether your goal is to save money for retirement or invest more money in your business, bookkeeping and accounting will help you set the right financial goal.
Preparing ahead of time is the best way to avoid tax stress. In addition, bookkeeping and organized records will help you avoid common mistakes.
Stick to the budget you have created
Putting a budget together will entirely change how you manage small business finances. It will thus help you generate more revenues than you may expect forecasting the business’s revenue and identifying unnecessary expenses.
It will be ideal for creating an operating budget that shows all the projected revenues for the financial year. Although it is only a high-level summary, it includes essential details like fixed, operating, and variable costs. You can take the operating budget as a tool that lets you understand if the expenses are going as per your plan or not. Also, focus on the cash flow budget that helps you keep track of the money going in and out to. Understand the liquidity of your business.
Optimize the payroll process
Amidst maintaining a study cash flow, you must only think about the best ways you can streamline your payroll process. A direct deposit will help with managing the cash flow better. This way, you can also eliminate different employees depositing cheques at different times, which will disrupt the cash flow and prevent you from accessing funds in your account.
Don’t be afraid of loans
Businesses fear falling into the debt trap unknowingly when they start borrowing money. No matter how skillful you might have been with managing small business finances, market disruptions and volatility can make it difficult for your business to meet working capital requirements. The best features of small business loans are easy eligibility and minimal documentation, making the application process hassle-free and quick. Small business loans tend to be collateral-free, offered at competitive interest rates. You can use the loan for businesses’ various needs, like paying salaries, buying inventory, or even utility bills.
Keep your personal and business finances separate
To avoid disorganized records, never mix business expenses with personal finances. Keeping track of received and sent money will be extremely difficult if you combine business and personal finances. It may also result in overspending as you use the personal fund for business expenses or vice versa. Keeping both separate will also help you claim tax deductions that come with various business-related expenses.
Invest more in growth
Think about the long run by setting aside money and looking into growth opportunities. This way, your business will thrive financially. Here are the wise words from Edgar Collado, the chief financial officer of Tobias Financial Advisor:
“A small business that wants to continue to grow, innovate and attract the best employees [should] demonstrate that they are willing to invest in the future,” he said. “Customers will appreciate the increased level of service. Employees will appreciate that you are investing in the company and their careers. And ultimately, you will create more value for your business than if you were spending all your profits on personal matters.”
Get a good billing strategy
There is always a client who is consistently late on payments and invoices. They can be a real pain when making payments. Managing small business finances also means managing cash flow and ensuring businesses are healthy. It also involves maintaining healthy business operations daily. Make sure to have the best billing software to avoid any chances of conflicts in the future. Small business invoice software is a 360* package that holds the power to manage invoicing and business finances. If you are still struggling with collecting cash from certain clients, it’s time to get creative with how you bill them.
Use a financial service/ tool
For better management of small business finances and cash flow, leverage various financial services and tools. The tools will come of great use to business owners, hr assignment help, and finance teams to automate manual, repetitive financial tasks and provide insights into money flow.
While businesses are primarily about providing excellent services and products, you can be out of business in a snap if you fail to manage your finance. The number one reason for a business going bankrupt is not understanding numbers properly. Therefore, it is essential to manage money wisely and build a healthy business that benefits employees, customers, and, more importantly, you. If you are a business owner, follow the tips suggested in the blog to maintain proper finance management.