5 Ways You can effectively Manage the Finances of your Small Business
Finances are what drive your business. Their management can either make or break your small business, so here's why you should be careful about them.
You are trying to get stability and growth for your business, ensuring that it remains profitable and gives you good returns for all your efforts, right? For that, you have to keep your Cash flow positive and your finances well managed. But if you are a newbie when it comes to monitoring your finances and keeping proper track of your funds, chances are things are easier said than done for you and your small business.
Let's first get a basic idea about what are business finances. (No, it does not mean all the money that you have with your bank and in your credit cards.)
Business Finance means all the funds and assets that you have introduced in your small business. Finance is required for purchasing assets, raw materials, maintaining inventory, maintaining day-to-day expenses, paying wages to your employees, and for all the other economic activities. In other words, you can say that finance is the very foundation of your small business. It is the sweet lifeblood to keep your business running.
And no, your personal investments and savings, Your credit card balance, or your own assets are not part of your business finances unless you chose to finance your small business with them.
Importance of Finances for Your Small Business
You got the idea of what business finance means. Now let's try to understand why it is so important for your small business. Finance is the primary requirement for the establishment of any business. Without it, your business just remains an idea on paper, however groundbreaking or innovative it may be.
Apart from the establishment of your small business, finances are also necessary to keep your business afloat during its daily operations, such as buying raw materials, paying taxes, giving wages and salaries to employees, marking and sales promotion of your product. Thus, You must manage the finances of your small business thoughtfully.
Here are the 5 essential tips to do that effectively
Give Considerable thought to Financial Planning
Financial Planning helps you to decide if your idea is sustainable in the long term and then guides your small business to growth and maturity. A well-thought and tested financial plan will give your small business greater confidence in its operations while giving you insights on how to decide on the sources and allocations of funds. A financial plan helps you determine if choices will impact revenue and which occasions call for dipping into reserve funds.
The majority of small business owners like either to self-fund or bootstrap their business, pointing that owner's personal funds are the sole source of capital. Although Putting money back into your small business seems like a good plan, allowing it to slowly and organically grow but this puts you at significant financial risk. You must charge a salary for the labor you put into the business. Secondly, self-financing is a very limited source of funds for business.
On the other hand, external sources such as loans and borrowings come with interest and repayment obligations which might adversely affect the confidence of your business.
Thoroughly Compare ROI and Expenditures
the first step to get a thorough idea of your business's Return on Investment is to separate your personal investments and financial goals from the investments and financial goals of your small business.
Saving up for your marriage, paying up your student loan, or buying a new car are all personal goals, and investments made to achieve these goals are not part of your small business investments.
whereas, putting money in the stock market or investing in some other business so that you can introduce a new product line for your small business in the next couple of years is strictly a business investment made for a business goal.
Measuring expenditures and return on investment can give you a clear picture of what investments make sense and which may not be worth continuing.
Understand that you cannot do Everything by Yourself
The biggest problem with every young entrepreneur out there. You can either be the accountant for your small business, its manager, at the cash register, or the promotor trying to grow your business. But you cannot be all of that, always. At the initial phase, you might be full of confidence and energy and convince yourself that you can effectively perform all the tasks by yourself. After a few weeks, you find yourself completely exerted working 70 hours a week but still not able to manage your business properly. Then, It is smarter for you to delegate your workload. You are short of funds and staff you say? You should consider platforms like Online Check Writer that not only provide you with the features such as Cash Accounting and payroll management via checks, but it is also a one-stop solution for all the payment management needs of your small business. Its cloud-based working allows you to do invoicing, bill payments, e-checks and even setting up a one-click payment link(button) for your small business or its website.
Managing and Monitoring your Cash Flows
To ensure the financial wellbeing of your small business, you must continuously monitor and manage your cash flows.
You should closely inspect all of your business expenses (direct and indirect) and overhead costs (fixed, variable, and semi-variable) to determine your total overhead cost and monitor it at regular intervals. This will give you proper insights into the spending behavior of your business and put a check on unnecessary expenses
By maintaining a healthy cash flow your small business can meet its current obligations including paying employees and purchasing raw materials, while simultaneously working to set up a reserve for investments and contingencies. Large assets such as real estate or the latest plant and machinery might attract you but if your business is struggling to meet daily expenses, then it is heading towards the end.
Building up Good Financial Habits
Like the case with all the other good habits, proper management of your finances will also require discipline and time. For that, You should devote some of your time to inspecting and monitor through your business expenses periodically. Although this may seem like an insignificant thing but trust me, in the long run, it greatly reduces the chances of employee fraud or embezzlement.
Also, Regular review and update of financial information will help your small business to avoid future risks and help you to set backup funds for any emergencies.
Overall, Proper management of your small business finances is what should be on your mind for its survival and growth. And you need not devote all your time to doing that. Considering the fact that online solutions are available to do it all for you, there's no excuse for you to still keep writing your finances on pen and paper, while you should be focusing on growing your business. Give it a try, your customers and your small business will thank you.