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How to Manage Your Small Business’s Finances Successfully


How to Manage Your Small Business’s Finances Successfully

A lot goes into running a successful business. You need a strong team, a good product or service, marketing that reaches the right target, and more. But a part of business success that often gets underrated is the importance of managing your finances. 

Improperly managing your finances can often spell the end of your business, and ultimately lead to failure. You need to have a financial plan and strategy, always be aware of how much you are bringing in, and ensure you are always prepared for tax time.

With that in mind, this guide is going to go over a few good tips to help you successfully manage the finances of your small business and stay on track.

Build Your Business Credit Score

First and foremost, you should make an effort to build up your business credit score. If your credit isn’t in a good place, it can make borrowing money more difficult and a bad credit score can often show vendors, lenders, or suppliers that your business carries a lot of risk.

You can build up your business credit score by using credit responsibly, keeping your utilization low, and making sure you always make payments on time. You won’t get great credit overnight, but with enough time and some dedication, you can certainly improve your score as a business.

Even if a bad business credit score doesn’t disqualify you from borrowing money, it will be more expensive due to a higher interest rate. Also, if you have collections or other negative marks on your credit report, it is a good idea to deal with them. Getting these removed can improve your chances of getting approved for credit and loans.

Make sure to check out your business credit report often, to ensure there are no mistakes or other issues that are negatively impacting your score.

Use Software and Technology When Possible

Trying to manage all of your finances manually can often be a disaster waiting to happen. Not only can things be misplaced, but mistakes can be made incredibly easily. It also takes a lot more work and effort to record every transaction or keep track of payments with paper and pen.

Instead, consider using technology when you can. This includes pieces of accounting software, tools to automate invoices, software to track sales and/or inventory, and more. It can make your financial management much simpler, quicker, and more effective. Sure, getting used to new software and methods of doing things may be difficult, but once you get a hang of it, it will save you a ton of time, effort, and money.

There are many options out there, and many of them are affordable enough for businesses of all shapes and sizes to try out. Make sure to do your research on the different options, and consider trying them out to see which works the best for your needs.

Monitor Your Spending and Create a Budget

Another important part of managing your finances is monitoring your spending to ensure you aren’t going overboard and putting your company at risk. Perhaps the best way to monitor your spending as a business is to create a budget. A budget will show you exactly how much you are spending every month, so there are no shocks or surprises.

Not only does it help you see how much you are spending, but also where that money is going. This can help you identify areas where you are spending too much. In addition to watching your spending, a budget can also be helpful to track cash flow and see how much revenue you are bringing in.

Of course, budget only works if you put in the effort to keep it current and updated, so make sure to stick with it. You can budget manually, but it is often better to use a piece of budgeting software to be able to enter and check things quickly, and from any device.

Keep a Cash Reserve

Another important thing to keep in mind is the importance of keeping a cash reserve. This is simply a little bit of extra cash that you keep around, just in case your business needs it for something.

An unforeseen issue popping up is common in business, and you need to be prepared. This could be a machine breaking down, your revenue slowing down, property taxes increasing, suppliers adjusting their prices, and more.

The amount you should keep varies, and can often depend on the costs associated with your business. The higher your costs, the more you should keep in reserve in case business slows down. If you don’t keep any extra in case of a business slowdown or unforeseen issues, your company could find itself in some trouble if you get unlucky.

This cash should be kept somewhere stable and secure, where it can be accessed quickly and easily if need be. For example, you wouldn’t want to keep this in a risky investment.

Don’t Be Afraid to Borrow

While keeping cash reserve is good, don’t be afraid to borrow money, either. Many businesses are hesitant to borrow, either for fear that things will get out of hand and they won’t be able to pay it back, or because they would simply rather spend money they actually have.

However, as long as you do it intelligently, getting a business loan can be a great way to reduce financial strain on your business. It can help you expand your operations, deal with surprising expenses that come out of nowhere, and generally scale up over time.

Of course, whenever you get a business loan make sure to take a close look at things like the terms, interest rate, and other rules. Also, ensure the lender you are working with is legitimate and trustworthy, too. If not, you could find yourself locked into a situation that hurts your business more than helps it.

In conclusion, we hope that this guide has been able to help you successfully manage the finances of your small business.


Managing Money: How to Reduce Financial Strain on Your Business

According to a study conducted by US Bank, as many as  82% of businesses fail because of cash flow issues. This recent study highlights just how important cash flow is, and how few businesses get managing money right.

Trying to balance books amidst a pandemic and subsequent global economic recession is far from easy, and can cause significant stress for big and small business owners alike. But it doesn’t have to be that way. 

Businesses struggle to regulate cash flow due to a variety of reasons. From supply chain issues to late payments, there is an endless string of financial problems that can arise across industries. 

However, it is the way in which businesses are approaching money matters that typically causes the most strain. Poor financial management practices are the number one reason why businesses fail, which is why we’re going to focus on how to correct them. 

Why Is Money Management Such A Common Problem? 

JP Morgan Chase & Co surveyed over 600,00 small businesses and found that the average business only has 27 cash buffer days. This means that if your business doesn’t start shifting its approach to sustainable cash flow management, it could head towards financial disaster in less than a month. 

Fortunately, there are some simple, actionable habits every business owner can adopt to regulate cash flow and alleviate some of the stress that inevitably comes with running a business. 

  • Chart out your cash flow 

Navigating the choppy waters of business cash flow is one of the toughest parts of running a business. But that also makes it one of the most crucial. Fortunately, for the entrepreneurs of today, there are many accounting software platforms available to assist with this. 

A digital cash flowchart can help you create easily comprehensive data spreadsheets that showcase your two main priorities: outflows (accounts payable) and inflows (sales of goods or services). 

  • Employ financial forecasting tools 

Another useful digital resource you can draw from to support financial management is a forecasting tool. Being able to track incoming and outgoing expense patterns in order to predict future outcomes can be a game changer for the way you approach business money management. 

  • Stay closely on top of company debt 

Debt is a fact of life for many people and businesses across the globe. But it’s not the accumulation of debt that is the real problem. It’s paying it back in a timely and sensible fashion. 

Most companies rely on loans to set up a business and start generating profit. If you belong to one of those companies, keeping a close eye on interest rates is essential for avoiding financial ruin. It is particularly important to monitor variable rate loans, which can fluctuate over time. 

Review your debt situation on a regular basis. Assess repayment costs, find out if your interest rates have changed, and determine whether your circumstances have changed enough to increase or decrease your debt funding. And always, always, always read the fine print.

  • Regularly review expenditures and ROI 

Monitoring expense and ROI reports is a reliable way to prevent excessive spending and adjust your financial strategy as needed. Quality accounting software should provide you with the ability to create reports based on balance sheets, cash flow statements, accounts payable/receivable, and depreciation.

It’s also important to monitor payroll, even if you outsource some of your work. For any growing company (regardless of size), this aspect of money management can be more complex than estimated. 

  • Build good business credit for loans 

As your business grows over time, you may make the decision to take out a loan. Contrary to what you might think, loans are a smart way to keep your business afloat, while better, more lucrative systems are put into place. But to qualify for business loans, you need to ensure your tax is in order, and that you have a solid business plan and good credit. 

Lenders look for clean tax records and proof that your business can repay the loan or that it has the assets to stand surety. With poor credit, receiving approval for business loans is also nearly impossible. So how do you build good credit? You pay off your debts fast, and you don’t take out loans with interest rates you can’t afford. 

  • Assess and adjust your price margins 

There are numerous factors that influence what your price margins should be: location, visibility, industry, and desirability, to name a few. And to make things even more complex, consumer behavior is constantly changing, so you need to keep a sharp eye on whether your prices match up to market sentiments. 

  • Create an efficient billing strategy 

A report from 2022 found that late and unpaid payments affect a whopping 87% of businesses. Receiving money that’s owed to you after the agreed-upon billing date is not just inconvenient, it can also seriously jeopardize your business’ state of financial affairs. 

Therefore, it’s imperative that you organize your billing strategy in a way that makes it extremely difficult for late payments to occur. You can incentivize clients to pay promptly by offering small discounts for punctuality, providing diverse payment channel options, or penalizing lateness with a fee. 

  • Make financial management a top priority 

Money management should not be an afterthought for your business. It should be at the center of every decision you make. Without a consistent cash flow and a strong grip on financial affairs, your business will be too vulnerable to bankruptcy and failure.

Make a concerted effort to not only monitor but continue to improve your cash flow strategy. Think ahead, stay focused on your financial goals, and be on the lookout for ways to increase efficiency. 

The Takeaway 

If running a successful business was easy, everyone would be doing it. But in the highly competitive capitalistic society that we live in today, there is much more to money management than what meets the eye. Learning how to lift the financial strain on your business is key to helping it thrive in future. 

By closely monitoring your cash flow status, regularly assessing things like ROI, billing processes, and profit margins, and cultivating healthy money management habits, your business will bounce back from financial strain stronger than before.