6 Financial Management Tips for Small Business Owners

Setting up a successful business is not an easy feat. It requires tiresome efforts and brilliant minds, particularly in financial management. The difficulties do not end there. Running a successful business means that you now have even more responsibilities on your shoulders. Your employees are dependent on you, and any decision that you take will not only affect you but your employees as well. Good leaders always evaluate every judgment with caution. This includes handling business finances.

Financial Management Tips for Small Business

Any business, whether it is old or a start-up, is made through proper financial records and management systems. If the venture suffers from an economic crisis, it will be equally troublesome for the business manager and employees. To save your organization from suffering through this turmoil, we have compiled a summary of financial management tips for small business managers.

1. Bad Planning can lead to failure:

Planning is the essence of achieving any goal you have set for yourself. A bad strategy or having no financial management system means you are bound to have a disaster.  It is always best to plan by having quarterly or half-yearly business budgets. Follow the budgeting closely; this will give you a clear idea of the expenditures that would come your way and the profit your business will make.

2. Collaboration of Business and Personal Finances:

When running a business, you must keep it separate from your personal life. This also includes your personal finances. If you are running low on money personally, it could be tempting for you to delve into your business savings. But it could be disastrous for you. You could say you would put that money back into your business once you have fulfilled your requirements. Such a move could upset the whole budget for the finances related to your venture. If the business runs out of cash, it will have a negative impact on everyone, including the customers, suppliers and employees.

The situation could also be the complete opposite. You might want to further invest your capital in your business when you are running low on finances. It is advised that you refrain from it. You have your family to support with that money, and if you spend all your life savings funding ventures, it could affect them too.

Personal transactions should always be separated from business transactions. This enables the business to account for realistic performance and avoid issues with tax authorities.

3. No organized Account System:

One way to track your expenses is to have an organized system to keep track of your funds. Keep the history of your expenses and sales in the form of invoices. They could be digital or in printed form. No business can thrive if it does not record its earnings and investments. Also, it will reduce the chance of fraud.

4. Late payment by Clients:

It could be that your business is thriving and having successful transactions. But some clients will delay payments well past the due date. Beware of those clients as they could put the business into cash flow problems. One tactic is to do due diligence on the new clients before offering credit sales or services. If the client has a history of late payments, clarify your position with them about delivering the said amount on time.

5. Having no Cash Reserves:

If the business is a start-up, you must realize that not all your financial plans will be solved with a loan. Your best method is to invest through personal savings or sweat capital. You should know that banks have very stringent loan requirements for small business. In most cases, banks will only give you a loan when they see the founder’s initial investment in the business.

6. Unnecessary spending:

No office needs luxury items if it cannot afford them. Follow the budget you have made and see where you can save money. There is no point in getting mahogany desks for your office room when plywood would do just fine. Remember, you are setting up your office and not decorating your living room to entertain guests. If you don’t necessarily need something in the office, it does not have to be there.

Giving your employees basic salaries and amenities in the office is your responsibility. But facilitating them way beyond needed, with things that don’t matter, is an additional expense. Whether you are a start-up business or own a well-set company, you don’t need to give your employees extra facilities if your profits are insufficient. Learn to manage your business expenses.

Not all your decisions will be the best in your life. But exercising caution during your business dealings is the best way. Make the steps given above your mantra to run your organization successfully and avoid financial issues. Whether your business is old or new, these financial management tips could be your guiding principles.

Bio: Rachael Everly is an undergraduate student who loves to write on topics related to business, finance and education. Follow @Rachael Everly for further updates.