9 Money Management Tips for Business Owners
Financial management is one of the most important responsibilities of owners and business managers. They must consider the potential consequences of their management decisions on profits, cash flow and on the financial condition of the company.
The activities of every aspect of a business have an impact on the company’s financial performance and must be evaluated and controlled by the business owner.
If you’re struggling to control your small business funds, check out the money management tips below:
1.) CREATE A BUDGET
A budget is a tool to track when and how you earn or spend money. Putting in the time to create and keep up with a small business budget can simplify the way you manage money. Budgets help you set expense and revenue goals.
Creating a budget is an important pillar of your overall success and security. It allows you to oversee and better understand whether your business has enough revenue (incoming money) to pay its expenses (outgoing money). Using a budget can help you make more informed financial decisions.
A budget can help you:
- Set short- and long-term goals for business growth
- Track revenue, expenses and cash flow
- Trim costs to avoid overspending
- Prepare for busy seasons and slowdowns
- Maintain a record of finances
2.) SEPARATE BUSINESS AND PERSONAL FUNDS
Mixing your personal and business funds can result in disorganized records, leading to overspending and missed growth opportunities.
When you combine funds, tracking withdrawn and deposited business funds becomes difficult, making it challenging to monitor incoming and outgoing money. If your business and personal funds are in one account, you might be prone to dip into your business funds for personal expenses or vice versa.
Apart from the many benefits in keeping your personal and business finances separate, two of the main reasons you should draw a line in the sands of finance are for tax and personal protection purposes.
3.) STAY ON TOP OF DEADLINES
If you don’t know when your bills are due, such as accounts payable, business loan payments, credit card payments or even taxes you might not have enough cash on hand. Not to mention, failing to know when bills are due can set you back with late fees or added interest and affect lender and vendor relationships.
To avoid missed bill payments, stay on top of your deadlines. Record when payments are due and set reminders so you don’t fall behind. Pencil in due dates on a paper, phone, or computer calendar and get on a consistent payment schedule.
4.) MONITOR SPENDING
Being aware of our spending habits is the best way of utilizing our money. When you know how much money you spend, it’s easy to balance your income with your spending and even save for the future.
If you operate a budget; (daily, monthly or even annual), the best way of ensuring that your spending is within the budget is by tracking your spending. When you track your spending, you know where your money goes and you can ensure that your money is used wisely.
Tracking your expenditures also allows you to understand why you’re in debt and how you got there. This will then help you design a befitting strategy of getting out of debt. In short, the main reason you should track your expenses is to identify and eliminate wasteful spending habits in your financial life.
Moreover, consistently tracking your expenses will help you maintain control of your finances, and promote better financial habits like saving and investing.
5.) TIME YOUR PURCHASES
To avoid instances of low cash flow, time your purchases. Do not make unnecessary purchases until you have paid your bills. And, wait until you have enough cash on hand to cover new expenses.
You can also time your purchases to decrease your tax liability. Before the end of the year, you might consider purchasing tax-deductible items (e.g. supplies) so you can claim them on your tax return.
On another note, timing is essential in buying the items you need. When supply is high and demand is low, you can save a ton on everything.
6.) MANAGE YOUR INVENTORY
Inventory management is important to small businesses because it helps them prevent stock-outs, manage multiple locations, and ensure accurate recordkeeping.
Track how much inventory you have in your business to avoid crossing the fine line between having too much inventory and not having enough. Record inventory purchases and sales in your books and spend time monitoring how much you have on hand before ordering more.
7.) CUT COST AND INCREASE YOUR REVENUE
One way to increase your revenue is to improve the strength of your brand. If you can establish an identity for your business that commands higher prices, you may be able to increase your revenues significantly.
Creative, effective marketing can have a huge impact on your branding, and many businesses find that their brand becomes very valuable over time, perhaps even more valuable than individual products. Create a unified marketing campaign that addresses customers’ needs, and flood the market with your images and messages.
To cut costs, first analyze your expenses. By looking at current expense areas and amounts, you can scale back and eliminate frills. You can also decrease expenses by shopping around for new vendors.
Consider where you might have room for changes.
- Are you already getting the best possible prices on materials?
- Have you negotiated costs for your facilities and for personnel?
- How competitive is the pricing in your industry?
- Is the economy in your market booming, or is it depressed?
- Can your processes be improved or can technology be employed to improve efficiency or capacity?
All of these factors will influence whether or not there is room for decreasing your costs or increasing your revenue.
8.) TRACK YOUR ACCOUNTS RECEIVABLES
Tracking your accounts receivables proactively allows you to follow up as soon as invoice due dates have passed and prioritize important payments. Tracking your receivables is essential for smart money management, receiving payments is even more important. You can pursue payments by sending out invoices and late notices to customers. And if your business needs money earlier than the due date, you can offer an early payment discount.
An effective accounts receivable management ensures that money owed by customers for goods delivered or services provided is paid to the company in a timely manner. Effective accounts receivable management enhances company cash flow by preventing nonpayment or late payment.
9.) HAVE A CASH RESERVE
The common rule of thumb is for businesses to have a cash buffer of three to six months’ worth of operating expenses. A cash reserve protects you against short-term issues such as a drop in sales or an unexpected expense and allows you to seize opportunities as they arise.
AMP Accounting and Tax Consultancy Services offers outsourced accounting services for MSME’s in the Philippines! Visit ampcfo.com and avail of our free consultation.
DISCLAIMER: This article is strictly for general information purposes only. Nothing in this article constitutes or intends to constitute financial, accounting, regulatory or legal advice and must not be used as a substitute for professional advice.
