7 FINANCE MANAGEMENT TIPS FOR SMALL BUSINESS

Finance: The sweet life-blood of business. Sound Finance management is crucial for the survival and growth of every organization. it becomes essential for a small business with limited funds and thin profit margins.

You would never want to be short of funds. But mishandling of finances happens more often than you imagine.

If you are also struggling to control your small business finances, try these Finance Management Tips:

Separate Business and Personal Finances

Blurring the lines between personal and business is never a good idea. Additional costs and complex formalities may tempt you to use your personal account instead of a business account.

Even if you are not required to separate business and personal funds, but you should have a separate business account. They help your business in a lot of areas. They provide separate records of your business transactions. This record/statement is useful for tracking profitability, reconciling your books, and monitoring spending.

Plus, it is also legal proof that you keep your personal and business funds strictly separate.

But if you mix your personal and business finances, it is difficult to determine the withdrawal and deposits of your business activities. You are more prone to dip into your business funds for personal spending and vice versa. Therefore it is essential to have a clear distinction between personal and business finance.

Monitor Your Small Business Expenses

How much money do you spend every day? Every week? What are your total expenses every month?

If you don't know the exact answers to these questions, it means you are not monitoring your expenses. If you don’t monitor spending, you could be paying up bills that you might not need. Unmonitored spendings can lead to overspending and misuse of finances.

Today, some banks offer all the essential banking needs of businesses in a single account. Online Banks such as Zilbank offer an all-in-one platform for businesses with very low processing fees. They also come with other useful features such as automatic integration, customized cards, and multiple accounts.

You can take advantage of such platforms to streamline your efforts in managing and monitoring your expenses.

Manage Your Account Receivables

Accounts receivable is simply the money your clients owe to your business. It tells you how much fund is held up unpaid by your clients. Offering credit payment options is necessary for the growth of your small business.

But you have to remember how much you are owed and when's the due date for receiving payment. It is also a good practice to give a gentle reminder such as text message or email to your customers. Preferably 4-6 days before the due date so that they can arrange funds beforehand.

But it's difficult to keep a tab on all the unpaid invoices. If you forget about a client, it may result in delayed payment and loss for your business. Consider having an automatic process for managing all your accounts receivable.

To easily help you remember accounts receivables, there are software to automate the account receivable process. A lot of businesses are using tools such as Quick books and Online Check Writer rather than manually tracking each unpaid invoice. They provide an easy interface along with a lot of utilities that will help you in the overall financial management of your business.

Lastly, getting payments is what ultimately counts. You should be proactive in sending out notices and late payment reminders to your customers.

And offer cash discounts to your customers for attracting immediate cash payments.

Never Forget Deadlines

Paying your vendors on time is as important as receiving money from clients. You should know when are your bills due. So you can plan your spending accordingly and arrange funds if you are short of cash. Prioritize your accounts receivable.

Give priority to loan repayments, credit cards, and other legal forms of borrowings.

Missing a deadline affects your business in many ways. Late fees penalties, lower credit scores, damage to your business, and sour relationships with vendors are just a few of them.

To avoid missed bill payments, closely monitor all your deadlines. Properly record when payments are due either on a diary, reminder, or computer calendar. Or have an automatic finance management system to help you with all that.

Invest in Growth

Growth is a necessary long-term goal. Especially in the case of small businesses. In addition to paying yourself, it's vital to set aside money for growth. This ensures that your business survives in the long run and has good profitability.

Taking all your profits for personal matters is a poor choice. It limits the developmental prospects of your business. And it gives bad signals to people associated with your business.

Say your business is struggling to keep up with the bills or unable to pay employees on time. Meanwhile, you decided to buy a brand new Porsche. This will definitely impact the morale of your employees.

Your employees and clients must realize that you are committed to the work you do. You know how to lead and you are eligible to run a business. You regularly invest in their growth. This shows that you don't just care about profits.

Loans Vs Savings

There are broadly two sources available for financing a business:

The first is savings. Savings are the profits that you reinject in the business. They are an organic, cost-free way to grow your business over time. But savings are generally very limited. They cannot be used for big investments. Moreover, it's not necessary that you will have enough savings every year.

Loans, on the other hand, are borrowed funds that come with the interest and repayment obligation. They do provide funds large enough for capital transactions such as buying new equipment or increasing the scale of your business operations.

But failing to pay back your loans can be scary. From late fees penalties to a legal suit, non-payment can lead you anywhere.

You should weight-in both the options and choose a sweet spot that is quick and easy for you to implement.

Build Your Business Credit

One major problem that small business owners face is to get eligible for loans. As your organization develops, you might need to buy more business land, have insurance for more employees, and conduct a greater number of transactions.

For all this, you need to have good business credit. It helps in getting loans approval faster. It also adds to the reputation of your organization.

To build a good credit score for your business:

Pay off all your debts as soon as possible.

Similarly, don't take loans with interest rates that you cannot afford.

Monitor your overdraft and credit cards so that it does not impact your credit score.

The Takeaway

Finances are crucial for the survival of your business. From the above mentions tips, it is evident that you should be smart while handling financial operations.