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16 Tips for Managing Small Business Finances

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Financial education has become essential for every adult in today’s fast-paced world. As a result, it becomes necessary to be financially aware when running a business or thinking of starting one, regardless of its niche, size, and scale of operation.

Most small businesses cannot survive the cut-throat competition in the business world today, even if they have a revolutionary idea. The primary reason behind this is often a lack of finances or poor financial management.

That being said, it helps to know all about small business finance. It helps ensure that your business withstands all the potential challenges owing to insufficient knowledge about how to manage small business finances.

We have put together a set of some of the most useful business financial management tips that will help you understand your business finances so that you can manage them efficiently.

Source: Freepik

Financial education has become essential for every adult in today’s fast-paced world. As a result, it becomes necessary to be financially aware when running a business or thinking of starting one, regardless of its niche, size, and scale of operation.

Most small businesses cannot survive the cut-throat competition in the business world today, even if they have a revolutionary idea. The primary reason behind this is often a lack of finances or poor  financial management.

That being said, it helps to know all about small business finance. It helps ensure that your business withstands all the potential challenges owing to insufficient knowledge about how to manage small business finances.

We have put together a set of some of the most useful business financial management tips that will help you understand your business finances so that you can manage them efficiently.

Source: Freepik

1. Manage and Track Your Cash Flow

The Cash Flow statement is one of the most important financial management tools that a small business should keep a very close track of. It gives a detailed picture of the money coming in and going out of the business. Managing the cash flow can be a challenging task for small businesses. Still, it is instrumental in providing crucial information about day-to-day operations, forecasting, tracking expenses and investments, and many more tasks at the heart of running a small business. 

2. Choose Your Business Partners Mindfully

As a small business, it can be very tempting to take every other deal that comes your way. However, going into business with people who have a bad credit history can prove to be more harmful than profitable in the future. So make sure to run a good check on the companies’ credit history and the individuals (if possible) who offer to partner with your business. After all, you wouldn’t want your business partner to default on the supply of goods or on the payment of the goods after they receive it from you. 

3. Don’t Shy Away from Setting the Terms

Before you decide to make a deal or partner up with some other party, you should come clean about all your terms and conditions right from the very first day. Let the other party know about the conditions of your business and the payment details. This will significantly reduce the payment defaults that can hinder your business operations in the future. A verbal exchange of the terms and conditions is not enough here. Getting the conditions in writing and getting them signed by the parties is the correct way to go forth, no matter how much you trust the other party to hold up their end of the bargain.

4. Busting the Myth About Loans

Source: Freepik

This is probably one of the most important financial tips for small business owners. Do not be afraid of taking loans. Yes, considering the prospect of taking a loan needs to account for the possible repercussions in case of failure of repayment, but the pros should not be ignored either. While starting a small business, you face a plethora of costs, from machinery and equipment costs to paying for the office rent and the employees; the list is long. Taking a loan can help you meet these costs and reduce the financial burden to focus more on the business’s operations.

5. Paying Yourself is Important as Well

Small business owners often tend to ignore their financial gains out of running the business, especially when it comes to the initial phases of the business. You are putting in enough effort to get compensated accordingly. Start by paying yourself a small percentage of the earnings to make sure that your personal finances are also in good shape at the end of the day.

6. Go for a Separate Business Account

Opening a new current account for your business is not a bad idea at all. There can be many perks that your business can enjoy through this bank account. Many introductory offers, credit cards, admin features, and exceptional customer support are some of the many benefits of opening this account. It will also help build a good relationship with the bank, which is definitely a major plus point for small businesses looking for additional finances or loans to meet their financial requirements.

7. Boost Your Credit Score

Leave no stone unturned when it comes to this part of handling finance in business. Boosting the credit score deserves to be one of the focus areas of your small business. Whether it comes to securing a loan for carrying out business operations or getting the funds for buying a commercial property, your credit score will become the first parameter that will be used to analyse your business’s performance. So check your credit report regularly and get it analyzed by an expert to help figure out ways to increase the score.

Source: Freepik

8. Keep Yourself Updated

Keeping yourself updated with the events happening in the financial world is always on the list of financial tips for small business owners. It helps in understanding your business finances better (from a holistic viewpoint). The financial world is highly interlinked. Every other decision taken has some direct or indirect impact on your business. Maybe it affects the chances of you securing a loan or the interest rate at which you get a loan. Take out some time every day to know what is happening around you, and have meaningful conversations with your accountant or mentor to sharpen your knowledge. 

9. Priorities Your Loans Wisely

It is not uncommon to have multiple loans when having a business to run. However, as a small business owner, it is a wise decision to prioritise these loans. Sometimes, you might find yourself in a situation wherein you are paying a higher interest rate than the market interest rate. Consider the option of refinancing here if that is possible, or sometimes there might be loans that have your assets tied up as a guarantee. It is important to pay back such loans on a priority basis to secure your assets, even if the business defaults.

10. Expenditure Tracking is Good, But so is ROI Tracking

Small business owners’ idea of business financial management is sometimes confined to the sphere of expenditures only or pays very little attention to the ROI that accompanies every expenditure made by the business. Unfortunately, this way of managing the small business’ finances can give birth to many bad investments. Tracking the ROI will help identify the pitfalls in the business’ investment strategy (which is very important to sustain and grow a business) and then allocate funds from underperforming assets to better-performing ones.

11. Minimize Your Travel Costs

Do not throw away your hard-earned money on expensive tickets and hotel room payments while travelling when you can make do with something much less luxurious. This can also leave an unwanted bad impression on your employees, seeing you spend so lavishly while going on a business trip. 

12. Know When to Rent and When to Buy

It is always a smart option to rent equipment or machinery that you only require for a specific period, rather than wasting money in buying it. Buying the equipment will come with the regular maintenance costs and several other related costs for a tool that is not even needed for long. Renting is more stress-free and financially sound in such a scenario.

13. Get a Good Accountant

Although small business owners need to become financially educated to run their business in a better manner, it is also crucial for them to hire a good accountant from a good accounting firm. With time, as the business’ operations grow, it will become even more difficult to stay on top of all accounting obligations while also focusing on business financial management. Investing in a good accountant is free of disadvantages and only has a large number of benefits. From getting to know about taxes to filing for returns and various financial schemes being offered by the government, a good accountant can be your saving grace. 

14. Don’t Mix Your Personal and Business’ Finances

As a small business owner, you might have made the seemingly small mistake of mixing up your personal finances with the business. Be it securing a loan or carrying out some transactions, it might seem easier to get it done from your personal account. But, it is not advisable for small business owners, because it can lead to many headaches and unexplained losses in maintaining your books. Keeping only the business’ money in the account will save a lot of time and effort when analyzing the small business finance to measure the business’s profitability. 

15. Create Your Emergency Fund 

Unforeseen circumstances have a liking for popping out of nowhere and draining your pockets. It is important to have some funds set aside for any mishap. Maybe your employee is detected with a long-term illness, or the company’s vehicle broke down – that you were not prepared for, both mentally and financially. Having funds for a rainy day is an underrated but excellent tip for managing finance in business. 

16. Plan for the Future

Understanding your business finances at present is one important thing, and managing sustainably with a vision for the future is another. Both strategies are made use of by all small business owners who are ahead of their competition. Saying that you should plan to the tee is unreasonable, but planning your finances as accurately as possible to undertake all future ventures is a sound financial practice for all small businesses.

Source: Freepik

Conclusion

Knowledge about business financial management lies at the heart of sustaining and growing a business. All these tips are sure to help you understand how to manage small business finances efficiently. Slate offers online bookkeeping, tax filing, and expert advisory services with cutting-edge technology to help you stay on top of your business’s finances. Slate is the all-in-one financial solution for small business owners helping them manage and track finances with the perfect mix of convenience and efficiency.

Slate Team

Slate Team

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