Most small business owners know better than anyone how difficult it can be to manage business finances properly, especially when there’s just not enough funds for all your ideas. Really now. Data shows that about a quarter of small businesses begin with no financing whatsoever.
But, even when you do start off with some money behind you, your business can still struggle financially to the point it fails. Did you know that inconsistent or insufficient cash flow is the primary reason for businesses to fail? Sounds scary, right? Well, what’s more frightening is the fact that 82% of companies fail for this reason.
We hope you’re thinking, “My business won’t fail due to money problems!” That’s the attitude! Yet, you need to do a bit more than simply make a resolution. To make sure that your business won’t fail due to money problems, you need to take the proper steps to ensure healthy finances.
Here are a few money management tips every small business owner should know to beat the odds and turn your startup into an absolute success!
Have a budget
Budgeting is a golden rule for healthy money management when it comes to both personal and business finances.
Part of having a business that is thriving financially is related to budgeting. Having a budget is the best way to stay on top of your expenses and revenue. Sure, budgets are not exactly exciting or fun to the majority of people, especially busy business owners. Yet, there are a lot of other fun parts to running a business. So, don’t ignore budgeting just because it isn’t as exciting as the rest.
Now, the real question is: “How do you budget efficiently?”
Well, there are several keys to budgeting. It all comes down to getting a clear idea of your monthly income, expenses, short-term and long-term financial goals, and how to achieve them.
Start by noting your income which is your revenue. From there, list all your expenses, from employee salaries to utility bills, debt, rent, supplier costs, production costs, and any other thing your business has to pay for and how much. Next, make sure to track your spending as you start paying for all those things. You also need to set your financial goals, both short-term and long-term ones. Next, it’s important to make a plan on how you’re going to achieve these goals.
Once you have a budget, make sure to stick to it. Again, not fun, but necessary. Sticking to your budget is the best way to make sure you don’t overspend and invite financial chaos in your business.
Another essential thing you should do when budgeting is to use the right tools. An accounting software tool, budgeting apps, expense tracking tools, billing, and payment processing solutions are just a few examples of the tools that will help you be a better CFO for your small business.
Don’t mix your personal and business budgets
We get it. Having one budget for your personal finances is already dull and challenging enough. And the idea of having one more separate budget for your business money can seem daunting. Yet, like it or not, it’s the smartest move you can make to avoid financial mistakes and problems by mixing personal and business money.
When you’re running a small business, it can be tempting to use business money for personal expenses and the other way around. However, it is never wise to mix these two as it will likely result in confusion, missing funds, surprise bills, and so on. None of these sounds like you have your business money figured out. The experts from QuickBooks explain that efficient accounting is essential in both personal and business finances, and it’s how you make smarter money choices, from investments to other financial decisions.
So, here’s how to make sure you don’t mix personal and business money:
- Keep two different budgets;
- Never use personal money for business expenses and the other way around;
- Pay yourself a salary from your business’s revenue.
Always look for ways to increase revenue
It’s pretty obvious that thriving finances come with a consistent cash flow. The more money your business makes, the better financially it is. At least that’s the case if you don’t make any wrong financial decisions.
Now, assuming that you won’t invest all your business’s money in a foolish idea, increased revenue should be the easiest way to make sure that your business won’t fail due to inconsistent or insufficient cash flow.
So, a smart money management move you should make is to look for ways to help your business increase its revenue. Here are a few strategies:
- Invest in training your employees.
- Invest in better marketing and sales strategies.
- Hire experts to improve your business’s key areas.
- Improve your customer service.
- Better understand your target audience’s needs and expectations.
The moment you start focusing your efforts and resources on increasing revenue, you’ll not only sell more, but you will also be able to sell your product/ services for more money.
Closely monitor ways to save money
They say that “A penny saved is a penny earned.” This is probably what every business owner, small or big, has in their minds. And, the truth is it is actually legit.
The more money you save as you run your business, the more financially stable it is. And, you may be thinking, “easier said than done”. Yet, there are actually plenty of ways to save more money with your business, including:
- Cut down utility costs (For example: ask employees to unplug their computers before leaving the office, use water-saving devices, use as much natural light as possible, etc.)
- Renegotiate your contracts with your suppliers (If you’ve been a loyal customer, your suppliers will likely find a way to renegotiate your costs)
- Invest in technology that helps reduce costs (For example, an innovative cloud solution helps you save money with managing your electronic files, from storage to security).
Increase employee productivity
While increasing the productivity of your employees doesn’t really sound like a financial tip, it actually makes a lot of sense when you realize that your business’s financial wellbeing is directly linked to how productive your employees are.
Your business thrives when your employees are happy and 100% in to deliver the best work. In contrast, when your employees feel demotivated, tired, too stressed out, and so on, they tend to be less efficient in their tasks. Needless to say, this also affects your business’s overall efficiency and success. So, make sure to also invest in your human resources in order to have a thriving business.
