Great business ideas, hard work and dedication are all essential part of building a successful business. Yet, the single most important factor in business and basically the primary objective of any business is making money. Money is what it is all about in business and making proper money management decisions is what separates great businessmen from poor ones.
Especially when running a small company which has to show consistent profit month after month, making good monetary decisions will keep the company ticking and salaries getting paid on time. This is why we decided to give you a few pointers as to how to manage small business finances properly which any young entrepreneur should know.
Here is our list of 6 best tips for managing small business finances:
- Separate Business and Personal
Keeping account of every penny you spend on business is very important. It is important to know what kind of profits you are making exactly which will help develop future strategies. What is more your accountant will have a horribly hard time understanding what’s what in the end if you just keep all the money piled up together.
If you are running a business, no matter the legal requirements, make it a matter of personal choice to separate the business and personal accounts 100%. The money in your business money is not yours to spend until you turn a profit, cash it out and place it in your personal account. All good entrepreneurs understand that they cannot treat their business account like their own private savings account as tempting as it may be.
- Plan Your Budget
Making a solid budget and sticking to it is very important. The last thing you want to do as a small business owner is to overextend yourself in any way and proper budget will help you manage your money in a smart say. Once you have set up your budget based on what you know you can afford, try not to go over the budget unless the company is growing much faster than you expected it to. Even then, make sure you redo your budget, instead of just randomly throwing money at stuff.
- Collect Your Receivables
As your business grow, you start to accumulate clients and those clients tend to owe you money. It is very important to collect any debts in time, as outstanding debts can mean you end up with insufficient operational money. What is more, you really don’t want to make a business where people know they can just owe you for as long as they want. If your receivables go out of bounds then you can hire the debt collectors or other professional help. Be fair but make sure others are as well.
- Find Ways to Save
I have seen many young small businesses go out and spend tons of cash on furniture, expensive branded software other stuff they simply don’t really need. When just starting out, people tend to be super enthusiastic and go with the “you have to spend money to make money” nonsense.
While it is true that you must spend money to make a business grow, it is important to invest in the important stuff and save money on the less important. Getting a cheaper office, cheaper furniture or open source software can mean the difference between showing a profit and losing money for a small business.
- Monitor Your Performance
As I mentioned earlier, it can be really tempting to see money flowing in and just be happy with that, without really knowing how much you are making. This method of things can often lead to you overestimating how much you are really profiting and start investing more than you can afford. Make sure you monitor and keep track of every cent that comes in or goes out of your accounts. Do weekly and monthly spending reports and try to understand your return of investment every time you pay a dollar for anything.
- Be Smart with Your Credit
Banks and credit companies will be all too happy to issue loans. But getting too many loans and investing them recklessly can lead to demise. If you are operating a small business, optimally you will want to operate with no loans whatsoever. If some loans are necessary, make sure you have a really good plan on how you will work to repay them and keep paying at all costs. After all, not paying off loans could cost your company its future.
While I think every smart young person out there in this day and age will probably be best of starting their own business, the reality is there simply isn’t enough business out there for everyone. In order to thrive as a small business owner, your financial decisions will be crucial. I hope this little guide helps at least some of you young entrepreneurs out there gradually turn into real business sharks.