Every company, big or small, is always concerned about this one thing – managing funds.
An effective financial management is a key to surviving a volatile economy and the industry competition. Small businesses need to exercise caution with their financial decisions from the very beginning. It takes more than just a good idea to run a business. Every business needs a financial structure that generates a profit to stay credible and small business owners need is to be equipped with good money management abilities to turn their venture into a success story.
Here are a few things you should do as a small business owner to stay on top of your finances.
1. Compensate yourself
In small businesses, it’s very likely to put in every last penny for the regular operations but small business owners shouldn’t overlook their own roles in the company and should compensate themselves as well.
It’s definitely more important for small business owners to get the business up and running and pay everyone else but they should also keep in mind that if the business fails or doesn’t perform as expected, they won’t have anything left. So, remember that you are a part of the business too and you need to compensate yourself as much as you pay others.
2. Invest for future growth
Paying yourself in important for contingency situations but it’s also important to have growth of the business in mind. A small business that is looking forward to continuing growing, innovate and attract the best employees should plan well to invest in the future. Your clients will also appreciate the increased quality of service. Employees will be more motivated to see that you are investing well in the company’s growth and in their careers. For example: As a web design start-up, one can start a B2B portal and target companies which either don’t own a website or run one that needs a facelift. Maintaining a B2B portal requires a team set up so, you should be prepared for that investment.
3. Strategize tax payments
You need to have a strategy to save for your quarterly tax payments. One could be to make it a monthly payment instead so that you remember to accommodate tax payments like any other monthly operating expense.
4. Cost cutting
It is important that small business owners stay tight-fisted to keep their expenses in check without hampering customer satisfaction. Every business endures 2 types of costs – fixed and variable. While fixed costs have to be borne irrespective of whether your business is making money or not, there is scope for savings in variable costs. For example, A web-design business could work with initially with free, cloud-based, open-source software, which might be as good as buying costly branded software. Also, one can conduct free online calls, video conferences instead of traveling long distances and can save on commute costs. You could also try bartering your services with other professionals and cut costs.
5. Monitor your books
This is considered the most important practice. You need to make a schedule of each day or month to review and monitor your books, even if you’re working with a bookkeeper. It will allow you to become more familiar with the finances of your business, but also provide you with a window into potential financial crime. For starters, you need to learn how to read financial statements (if you don’t already know how). This is one important statement that tells you all about your money – where it originated from, how many hands it changed, and where it is. Do not neglect bank reconciliations and spending some time each month on reviewing outstanding invoice.
6. Return on Investments
Constant monitoring of expenditures and return on investment can give a small business owner a clear picture of the investments which are fruitful and the ones which are not worth continuing. Small business owners should be specifically wary of where they spend their money. One needs to focus on the ROI that comes with each of your expenditures. This ensures that you don’t lose money on irrelevant or bad spending bets. If a particular investment isn’t paying off, you need to cut back and concentrate on the initiatives that work for you and your business.
7. Financial protocols
Establishing internal financial protocols, even if it’s as simple as blocking outset time to review and update financial information, can go a long way in protecting the financial health of your business. Keeping up with your finances can help you mitigate fraud or risk.
“As a small business, we are often strapped for time, money and have vastly inferior technological capabilities, but it shouldn’t prevent any small business owner from implementing some sort of internal control. This is especially important if you have employees. Weak internal controls can lead to employee fraud or theft and can potentially get you into legal problems if you or an employee are not abiding by certain laws.”
8. Invest in Cloud-based Accounting Software
While you can definitely download regular accounting software to manage your finances, it will never give you the kind of convenience cloud-based accounting software can. The web-based software provides you with real-time insights as most allow you to store, update, track and access data from anywhere at any time. Whether you’re at home, office or are traveling, you can conveniently work with your data from anywhere you like. It is error-free, hassle-free and dependable.
9. Hire Professional Help
Everyone needs help, especially a budding entrepreneur interested in making a huge success of his venture. Sometimes, it pays off to engage the services of an expert, even if it is on a part-time basis. They can help you determine where your business is, where it is heading by using and analyzing your data. Make sure you hire someone you trust, though. Whether it is tax planning for the next financial year or payment for the current year, their expertise can go a long way in guiding you and bringing you peace of mind.
10. Plan ahead
There will always be business issues that need to be addressed today, but when it comes to your finances, you need to plan for the future. Change is the only thing which is constant in this world. If you’re not looking five to 10 years ahead, you are behind the competition.
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