12 Tips on How to Manage Business Finances
Good financial management can be challenging for newer business owners. It can remain a complicated process for longtime business owners, too. The tips below should help you develop a comprehensive financial plan whether you’re a first-time entrepreneur or managing a company is nothing new.
1. Build a Business Budget
Setting an effective budget can be a heavy lift, but it’s integral to the health of your finances. To start, locate your business income in your profit and loss statement, also known as your income statement. Then, make a list of your expected monthly expenses. This list could include your office rent, equipment costs, insurance premiums, marketing services, payroll, and so much more.
After all your expenses are accounted for, compare them to your monthly income. Using that information, you can more accurately eliminate unneeded expenses and maximize profits while minimizing loss.
2. Know What Cash Flow Really Means
Successfully running a business often depends on knowing how much money is coming in and going out. Namely, it means knowing where each dollar came from and where it goes – and whether it’s actually in your pocket or still in accounts receivable. This concept is called cash flow. It explains why you could be low on cash after having sent a ton of invoices. If your clients haven’t yet paid these invoices, you’ll have high revenue but low cash flow. And you can’t spend money you don’t have.
3. Keep Your Balance Sheet Up To Date
A balance sheet is a snapshot of your business’ assets, liabilities, and equity. It tallies everything your company owns (assets) and everything you owe (liability and equity). Keeping these records up to date allows potential investors (and, of course, you) to get a better sense of your business’s financial health.
4. Start Forecasting
Both big and small businesses can run into financial trouble at any point. However, that trouble can feel more impactful for small business owners – you might have fewer resources available to weather the storm. The best way to combat those circumstances is to predict them and adjust your finances accordingly. That process is called financial forecasting.
Proper forecasting can tell you when to cut back on expenses or safely take out a small business loan. Of course, the market is turbulent at even the best of times, so you might want to call in a professional at first. But with practice, you might be able to predict the business environment several years ahead of time and plan accordingly.
5. Pay Yourself
Small business owners often invest all revenue back into their company to help it grow. At the same time, they might forget that they themselves are essential to the business. Admittedly, taking money away from the company and giving it to yourself may initially seem counterintuitive. In reality, the work you do deserves fair compensation. Plus, building up your business and personal bank accounts simultaneously is good for your morale.
6. Set Aside Funds for Growth Opportunities
Many successful businesses regularly seek growth opportunities to reach a broader portion of the market. These initiatives can earn you more money, but they require lots of money to start in the first place.
For example, you could hire more employees, buy better equipment, and get a bigger office. These steps show your team that things are going great and can motivate them to be more productive. The more they can create, the more you can sell. You could also expand your offerings to suit your customers’ needs – doing so leaves a great impression that could boost your revenue.
7. Consider Small Business Loans
Loans can be scary: What if you can’t repay them? But most of the time, loans are just the financial boost you need. In fact, they’re often integral to a small business’s early success. They’re basically quick boosts to your assets that help your business expand or continue paying your employees until you’re in a better financial position.
Several types of business loans exist. SBA 7(a) loans are the gold standard for small businesses. Bank term loans and custom financing can also be helpful. Speak with a small business lending expert to make an informed decision.