If all small business owners can gather together to highlight the one thing that they despise doing, we would get a lot of votes in favor of managing business finance. In fact, there has been research conducted in this regard and small business owners have blatantly agreed that managing business finance is the one thing that they despise doing. While managing finance is despised by small owners, it is also one of the most significant reasons leading to the failure of a given business. It is when the founding members are unable to manage finance that the business fails to move on and is stranded towards failure. Hence, if you want your business to succeed, it is necessary that you manage your small business finance in the best manner possible, without any flaws whatsoever.
Managing finances is a major challenge for almost every business owner, especially if the business owner has no professional education in finance. A professional education in finance can act as the building stone for your business to move forward financially, but if you lack such a qualification, you will barely have any expertise on your hand.
A small business can experience unprecedented growth if it is managed well financially. The finances of the business include the maintenance of the books, and keeping a constant check over profits and other intricacies. The profits that you are able to make through your business would only pay due dividend, if you are able to manage your affairs well. As a business it is necessary that you take the right steps forward and do not let any hindrance stop you from proceeding forward.
The most important step for every entrepreneur or business owner is to educate themselves. We understand that you might not have the relevant expertise in managing finances, but you shouldn’t stop that from educating yourself. There are plenty of resources available online and you can learn just about everything from these resources. In this article we will present you some useful information as well that can help you manage your business’s finances in the best manner possible.
There is nothing more terrifying for a business owner than the thought of financial mismanagement. Not only would you be messing with the most important resource for your business; cash, but you would also be landing yourself in danger when it comes to computing taxes. Any discrepancies in the computation of taxes can land you in some significant legal trouble.
Knowing all of this, it is necessary that you know everything there is to know about managing small business finance. In this article we mention all that you should know with a special emphasis on just how this can aid your business achieve the growth that you want for it. Follow these tips and improve the financial standing of your business for the better.
The best financial model you should follow while setting up your business is to pay yourself a fixed salary. Rather than taking out what you like whenever you like from the finances set aside for the business, it is necessary that you fix a genuine rate for yourself.
Most business owners often neglect this important point and end up wrecking their finances up in the first few months of operations. Some of the flaws or faults that can be committed here with your lack of information include:
- Business owner does not separate personal finance from business finance and keeps on mixing up the both. This kind of error is not recommended at all, and you should look to manage your finances without any such flaws. When you are managing your business you should look to keep your personal finances separate from the business finance.
- If you keep taking out money from the business bank account whenever you like, there will come a time when you would deplete the reserves, leading to a major financial crunch. Not only do you have to be frugal when it comes to managing expenses for the business, but you also need to be frugal when it comes to managing your expenses. You should set a modest pay rate and withdraw no more than that from the business bank account.
- Additionally, not setting up a fixed salary for you can also lead to many other problems with cash flow. If you keep taking out cash from the business, your cash flow would suffer a major hit. Your business would never get the chance to grow properly, as it would be robbed of all reserves from the word go.
- Moreover, mixing up personal and business finances can also lead to confusion in credit. If you have separate credit for your personal needs and separate credit for business needs, you should look to separate them at all times. Mixing both the credits can have quite a detrimental impact on your credit history and score.
Knowing the impacts of not maintaining a monthly salary for yourself, you should look to get a fixed salary. This would add a lot of organization to your business reserves as well, and would help you out in ways more than one.
Invest in Growth
In addition to paying yourself a periodic salary, it is necessary to keep growth in mind at all times. The ultimate aim of all small business owners is to achieve growth for their organization. Your business can only truly grow to the heights that you have in mind for it, when you invest in growth and make the idea work.
We see many organizations with a keen eye on financial and operational growth, but not saving enough for the purpose. All of the ideas and ambitions that you have for growth would never pay dividend, if you are not saving for them. If you want to achieve growth, you have to invest in it.
A small business with ambitions to grow should demonstrate the ability to do so as well. You should invest in your future, and should most importantly believe that you have a future. You should look to get the best employees for your brand and should continue to expand operations from time to time. Every business needs time to grow and business owners that have their eyes set on the future can achieve this kind of growth with time.
A small business looking to grow should realize the importance of investing in growth. Save your profits and maintain a fund for the purpose. Invest a part of your profits in the separate fund you have allocated for growth, rather than spending them all on personal stuff.
Manage Cash Well
The cash you have in your business is by far the most important asset you possess. If we consider your business to be a car engine, then cash would be the engine lubricant that keeps it running. Well, yeah fuel or profits are necessary as well, but the engine would choke if the right lubricant isn’t sprayed around.
Cash is necessary for paying suppliers, funding the operations inside your business and also buying the necessary assets and equipment. Your business would find it hard to operate without the right cash reserves, which is why it is extremely important.
As a small business owner you should make sure that you realize the importance of cash and work on it accordingly to get the kind of results that you expect. A small business can only succeed when cash reserves are routinely overseen and are checked for any discrepancy. Besides keeping an eye on cash, you should also follow practices that help you manage cash in a flawless manner. These practices are often a necessity for businesses, because they allow you to maintain cash for your business.
The practices that you should follow here include:
- Make sure that you try to lure customers into cash deals. Customers should be offered cash discounts, as they are best for your organization. Credit customers often give back their dues in whatever manner suits them well, which can delay the inflow of cash in to your business. While the sale will be recorded at the time it happens, it can only be actualized in the form of cash when your credit customer makes their actual payment. Hence, it is necessary to offer cash discounts to customers and to force them into paying their dues.
- Besides managing customers well, you should also look to keep a buffer level of cash. Know just how much cash you should have with you at all times. Don’t deplete your resources and make sure that the levels are maintained where you want them to.
- Cash flow problems are a leading cause of business problems and usually occur when your business ties down resources in a specific spot. You just purchased that additional machinery for production and now all your cash has been tied down with that machine. This practice can be quite detrimental and can give you major regrets down the line.
The flow of cash should be guaranteed at all times and if you are facing a major liquidity crisis, you should look to monitor it through small business funding. Small business funding will inject some additional cash in to your reserves, which you can use until you get a grasp over cash within your own business.
Manage Funding Well
Carrying on from what we mentioned above, there will come a time during the course of your operations that you will need funding from an external funder. This could come at the time of the start for startup funding or could come during the course of the operations through the need for small business funding. But, regardless of the situation that requires such a funding, it is necessary that you maintain a keen check on your funding needs to ensure that they are well managed.
Once you get small business funding you shouldn’t let the finances excite you or overwhelm you. It is necessary that you maintain your calm and manage the cash that is coming through this funding in the best manner possible.
First off, you should look to evaluate your options and should deal with a funder that is best for you. Only a funder that understands your needs can help you get the kind of funding you are looking for.
For beginners, it is necessary for your funder to offer you a good repayment plan and quick processes. The funder you are working with should process your small business funding as quickly as possible and should try to minimize the damage to a certain extent.
A merchant cash advance from any private funder is a good way for you to get started. Merchant cash advances are contemporary funding option and are made for businesses looking to achieve a decent repayment opportunity. A MCA can be awarded to anyone, regardless of your poor credit history. This is the benefit of working with a trustable agency. Once you get a Merchant Cash Advance, you can repay it based on your own convenience.
Have a Rainy Day Fund
It is good for you to save some money from your monthly or yearly profits for a separate fund meant to help you out during tough times. The fund should only be used or opened when you need the finances and have no other option. The money kept aside in this fund can come in useful for many businesses and can help them navigate past a tricky situation in the best manner possible. The thing about small businesses is that they don’t have a lot of revenue streams coming in, but if you are clever, you can maintain a decent rainy day fund.
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