Growing a successful business isn’t just about ideas, innovation and sales. All of that can be jettisoned if you ignore the detail of financial management. You do not necessarily need to manage the finances yourself, often that is better outsourced to specialists. But you do need to understand your finances and be up to date with some of the latest issues around financial security. Here are our 10 top tips to help you to manage your small business money.
1. Be honest about overhead expenses
Overhead expenses tend to be the ones that get underestimated. As a result, people overspend, lose money and wonder where it went. Instead, sit down to comb through your expenses for each month. Whether you’re looking at how much it costs to print shipping labels or cover the electric bill, take every single expense into account.
2. Create a mandatory budget
Once you’re clear on how much the company needs in order to function every month with overhead expenses, create a cash flow budget. Create a line item for each overhead expense. Make a line item for your savings account. If you have employees, make sure there’s a line item for their compensation. Once you’ve created the budget, review and update it regularly. Make sure that every single penny has a defined assignment within the business. Don’t lump any bills into a random miscellaneous line item. Every penny needs to be accounted for. This will help you to stay on track.
3. Maintain a strict tracking system
You can create accounts for different expenses. For some people, it’s difficult to manage money when it’s all coming from the same bank account. It’s okay to maintain a separate account for expenses like utilities and office software. There are online tracking systems that will alert you of the bank balance when you want it. If you have to operate on a cash-based budget for certain items like office supplies and kitchen replenishment, this can help as well because you won’t have the addictive nature of swiping yourself into debt with a credit or debit card.
4. Save all receipts and financial documents
Keep a running file that’s filled with your receipts regarding every financial expense. Whether you went to the local print shop to make copies or travelled to another county for a company conference, these expenses can become items you can write off around tax time. As a result, you can save a ton of money in the end. Knowing this, create two files: physical and electronic. Even better use expense management software. When a purchase is made, make sure the employees know to save the receipt, scan it into the system and file it away in a physical folder. Your accountant will be grateful when tax time comes around.
5. Maintain a separate business bank account
When you’re first starting a small business, you might be tempted to make purchases with your personal credit cards and debit cards. Do not make this mistake. As soon as you are able to open a separate business bank account, make it happen. You don’t want to merge your personal and business finances. This will keep you organised and stress-free around tax time as well. If your business is a Limited Company, then it’s a separate legal entity to you and needs to have its own business bank account. As a sole trader, a business bank account is not strictly necessary and if you are very well organised you could use a personal account and save on fees.
6. Find a financial manager or accountant
Unless you are well-versed in small business money management, it’s best to find an accountant who can help you manage the money. You don’t have to actually hire an accountant. You can outsource the process to an independent accountancy firm. If you’d like to hire one who works in-house, that’s always convenient. Just know that it’s not mandatory.
7. Have a security protocol for transferring funds
8. Develop multiple income streams within the company
If you’re running a candle shop, it makes sense for your primary income source to be candle sales. However, get creative with other income streams. Consider hosting classes where you teach people how to make their own candles. Purchase other complementary items at wholesale prices to sell in your shop like mugs, coasters and diffusers.
9. Maintain a reliable savings account.
Always be prepared in the face of an emergency. If a major appliance breaks down, you don’t want the company to suffer because you can’t afford to quickly replace it. Maintain an untouchable savings account that is strictly for emergencies. Then, maintain another savings account that you can use when the company is facing a slower season.
10. Invoice fast, always
Don’t be tardy when it comes to billing customers. Send invoices out instantly, have tight payment terms and have a process for following up late payments. Most small businesses have stories of clients who went bust or rotten and who never paid. Some of the biggest names take 6 months or more to pay. Any of those hold-ups could sink your business; small businesses are more likely to fail due to cashflow problems than any others reason.
Small business finance isn’t glamorous, but getting to grips with it is an essential foundation for the sparkly side of success.