Money Matters: How to Manage Your Small Business FinancesPosted by On


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Starting your own business is an exciting experience but it’s also a path full of potential traps and pitfalls.

Among a number of complex issues and administrative tasks that have to be taken care of, there’s also an aspect of business that needs particularly careful consideration – your finances.

As an entrepreneur, you don’t have to be a financial expert to build a successful business, but on the other hand, you can’t embark on such a journey without knowing the first thing about this important topic.

If we bear in mind that 82% of small businesses fail due to poor cash flow management, it’s clear that running your finances wisely is a make-it-or-break-it factor.

Here are some tips to help you find your feet and avoid the worst-case scenarios.

Control Your Expenses

Early stages of running a business are quite demanding in terms of money.

That’s why it’s important not to get carried away and spend more than you should.

The first step is planning your large expenses a year in advance. Setting aside a lump sum that will cover for your rent, payrolls, cost materials for your products, as well as other operating expenses will relive a financial burden, and allow you to stay afloat even during the dry spells and difficult months.

Separate Your Business and Personal Finances

It’s crucial to keep your personal and business bank accounts separate.

This will allow for more accurate and straightforward accounting so that you can do your taxes properly at the end of the financial year. Otherwise, it will be hard if not impossible to figure out how much money you used for your personal spending and how much should be attributed to business expenses and costs.

More importantly, such a clear division will prevent a cash crunch caused by personal expenditure.

The same goes for your loans – don’t use the ones intended for business purposes in order to cover personal expenses and vice versa.

Set Up a Retirement Account

When you’re your own boss, you’re the one responsible for retirement planning, so take it very seriously and do it in a timely manner in order to build your nest egg and ensure a comfortable and carefree retirement.

The earlier you start, the more money you will have at your disposal when you stop working. There are different retirement plans so that you can opt for the one that you can afford at the moment, and later as your income starts growing, increase your retirement savings.

Cut Corners

There are two types of costs in business – fixed and variable.

Fixed costs are the ones that have to be covered no matter whether your business is making money or not, and there’s no room for reducing them.

On the other hand, variable costs can be controlled. For example, instead of opting for expensive branded software, you can use open-source solutions.

Similarly, instead of traveling long distances for business meetings, and wasting money on transportation and accommodation, you can conduct video and conference calls.

Manage Your Invoicing Properly

As we’ve already mentioned, good cash flow management is critical for the survival of your business.

This means that your invoicing system should be streamlined.

It’s very easy to misplace or forget to send an invoice when your day is hectic, so it’s important to be very particular about this part of your administrative activities.

First of all, send your invoice the moment you provide goods and services – don’t wait until the day after and procrastinate.

Another thing is to keep accurate records of your invoices and payments as that’s the only way to ensure that your business is running smoothly. You can even set up an invoicing system in the cloud and always have all the information you need at your fingertips without having to go through papers and documents.

Finally, don’t hesitate to remind a client about payment, both in advance and in case when they’re overdue.

Have an Emergency Fund

Having a certain amount of money stashed away for a rainy day is a good idea both for personal and business purposes.

As you’ll see it for yourself, your bottom line won’t be the same every month. Some periods will be marked by consistent sales and regular profits, while certain will be slump months during which it will be hard to make ends meet.

That’s why it’s a good idea to use a portion of the income from the months when you hit your sales quota and use it to design your off-season funds. This way you’ll ensure that your business can cover operational costs even during the slower months.

Predict Your Revenue

As a business owner, you should keep track and analyze the movement of your money.

By being in the know of your company’s financial performance and comparing your past financial statements with the current ones, you’ll be able to predict your future revenue, as well as expenses, and identify what you should fine-tune and improve in order to achieve your business and financial goals.

Live Below Your Means

Establishing a small business is a difficult process full of rough patches and bumps in the road.

So, it’s essential to be prepared to live below your means for a couple of months or even a year, until your company takes off and starts making money.

This means that you should be cutting your personal expenses before you launch your business in order to save enough money for your operational costs and livelihood for the first six months.

Being frugal is an essential trait of an entrepreneur, so your salary should be as low as possible. Also, don’t fall into the trap of taking advantage of all the numerous perks of business-ownership even if it seems like you can afford it at the time.

Save all the money you can, as that will offer you more flexibility during the times when your sales are low.

As you can see, some of these tips for managing your small business finances are the same as the ones you follow for running your household effectively. Follow them and stay out of the red.

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