The Best Tips for Managing Small Business Finance


With emerging technological trends, starting a business has become effortless. All you need is an eye-catching product, a small amount of capital, and an attractive social media profile to start selling. Although kicking off a venture seems plain sailing, managing a small business is a never-ending battle. From recruiting a competent team, overseeing marketing practices, to handling money-related matters – entrepreneurs have to become the jack of all trades.

Do you know which task is the most challenging amongst all? Business finances. Insufficient cash and substantial liquidity crisis can land a well-performing business into hot waters. Likewise, inadequate fund allocation and mismanagement can lead to potential business losses. Therefore, if you want to keep your business running smoothly, ensure proper financial management. Whether you have insignificant expenses or hefty income, you must record every business transaction.

In addition to bookkeeping, prepare financial statements to assess the company’s performance. Similarly, keep an eye on all inflows and outflows of the business to close doors for fraudulent activities and errors. If you are foreign to the finance world, have a look below. Here we are listing six incredible tips for managing small business finance.

1.       Outline financial projections & budgets

Usually, businesses use profits and revenue as a critical indicator of business performance. In real terms, higher profits don’t mean better business. Sometimes, companies are making hefty profits yet can’t foot their bills due to insufficient cash. Besides indicating a significant crisis, it demonstrates poor cash flow management practices. Unfortunately, you won’t know about this until you outline financial projections.

Revenue, liabilities, capital, cash flow, and inventory – financial statements put forward every financial detail. So, why not create some budgets and financial projections. Besides number-crunching skills, these projections requirewidespread financial knowledge.

Although an accountant can come in handy here, it would add to the long list of business expenses. Thus, consider investing in yourself by pursuing an accountant online degree to learn the ropes. While the company will outshine with your expertise, higher education can open doors to professional development.

2.       Draft a stellar billing strategy

Are your clients always late on their invoices and payments? Although offering leverage in the billings is crucial to maintain healthy relationships, don’t let this affect your cash flows. A lot of cash tied invoices increases the risk of bad debts while distorting business operations. Thus, if you are struggling to collect timely payments, it is time to get creative with your billing strategy. Instead of badgering them with repeated phone calls and invoices, change the payment terms.

You can create a billing strategy around ‘2/10 Net 30.’ It means the customer will receive a 2% discount on the entire bill if they pay within ten days. Else, the full payment will be due within 30 days. Otherwise, you can charge penalties on late payments to ensure timely payments. In addition to increasing business inflows, you can use this money to pay off creditors and suppliers.

3.       Maintain business credit

As business starts growing, entrepreneurs explore expansion opportunities. You might want to open another real estate office, acquire additional insurance policies, or obtain business loans. However, it could take forever to fulfill these goals with poor business credit. While some banks will take forever to approve your application, others would ask for covenants. These are mere conditions set by the banks and insurance companies.

If you want to save yourself from this hassle, strengthen your credit score. Firstly, don’t let your business credit cards run a balance for more than a few weeks. As soon as the month ends, make all payments. Likewise, refrain from taking loans with interest rates your business can’t repay. The authorities increase and decrease credit score based on how quickly you make repayments.

4.       Invest in growth

Every entrepreneur wants to maximize profits and enjoy lucrative returns. But when it comes to business development, you should set aside some money and look into growth opportunities. It will let your company thrive while moving it in a healthy financial direction. Most importantly, it will increase business income, bolstering the company’s financial position. So, do you have any investment opportunities in mind?

If you want ownership in other companies, consider crawling into the stock market. You can purchase shares of different companies and enjoy stable returns in the form of dividends. Otherwise, if you have a healthy appetite for risk, explore some financial instruments like T-Bills, commercial deposits, etc. Besides promising growth, employees will appreciate that you are investing in careers. And ultimately, it would create more value for the company.

5.       Focus on expenditure & ROI

Are you overspending on utility bills and travel expenses? High business expenses act as a barrier against stable profits. Therefore, you have to measure expenditures to get a clear idea of what investments make sense and which ones are not worth continuing. For instance, if tariffs are increasing on raw materials, consider finding a local supplier. It would reduce the material cost while eliminating import duties and tariffs.

Likewise, focus on the ‘return on investment’ that comes with each expenditure. You should know where you are spending hard-earned money and how it is paying off. If you are spending $200 on advertisements, check the returns. In case it is not paying off well, cut back on advertisement campaigns and invest in the initiatives that bring returns for your business.

6.       Stop being afraid of loans

Usually, people worry about the repercussions of loans. Indeed, taking loans can be quite scary, but isn’t this what running a business all about, taking risks? The influx of capital you will acquire from the loan can open doors to many new growth opportunities. You can use it to install a new plant or equipment, boost your cash flow, and ensure smooth business processes.

If a conventional bank loan seems a lot, open a credit line or get a business credit card. It would help you pay for day-to-day expenses, avoiding any disruptions that can arise because of cash flow problems. However, before calling the shots, analyze your financial statements. Ensure you have ample profits to cover repayments with interest.

Final thoughts

With increasing automation, the business environments are getting quite complex. While marketing departments need a substantial budget for digital ventures, IT departments need consistent money to keep upgrading. In all this hustle-bustle, managing small business finances can be super challenging.  Therefore, equip yourself with accurate financial projections, budgets, and a competent billing strategy to stay on top of all money-related matters.

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