Manage your money to build your business
Starting and managing a successful small business is not just about driving up sales. You have to know how to manage your money. That’s why it is important to pay close attention to how much money your company is spending versus how much it’s bringing in. If you find yourself being strapped for cash more often than not, then it’s time to pick up a few money management tips:
Create a budget
Pretty simple, yet a lot of entrepreneurs still do not do it. A budget is a guideline that helps you fix any holes in your cash management system. Track expenditures and revenues, allocate funds to necessary spending accounts, and most importantly, watch your savings. When you know how much you can spend, you can more easily track your finances. A budget also forecasts the amount of revenue your business will receive. If you find that your revenue is lower than budgeted, find ways to cut expenses and increase income.
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Separate business and personal funds
Do you have a separate bank account for business? Or do you take money from your business register to take your family out when Easter rolls around? Even if you aren’t required to separate business and personal funds, doing so is critical to money management. Business bank statements are useful for tracking profitability, reconciling your books, and monitoring spending. Muddling finances can result in disorganised records, leading to over-spending and missed growth opportunities. If your business and personal funds are in one account, tracking withdrawn and deposited business funds becomes challenging. You might miss key insights about your business or dip into your business funds for personal expenses or vice versa.
If you order too much inventory, only to have it collect dust in your storage room, you risk turning them into idle assets. Likewise, not having enough on hand to service your customers’ demands is bad for business. It is all about paying attention to how your inventory is managed. Record inventory purchases and sales in your books and spend time monitoring how much you have on hand before ordering more. This strategy will help increase your operating profit and manage your cash flow.
Take care of the bigger business issues
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This entails several things. For instance are your legal fees getting out of hand? Choose a billing option that is the most cost-effective for your business. Maybe your business is too young for all that, then consider DIY legal documents. There are various kinds available online but only for the simple necessities. Want to expand? Do so wisely and steadily. Looking for an office space? Consider renting your office space, as it makes relocation and expansion easier. Is your business failing? Apply for a business loan when your financials are still in a good state. This way, the loan can be used for expansion or as an emergency line of credit instead of rescue. And most importantly don’t spend prematurely. Don’t go big on business cards, sign writing, marketing materials, cars or inventory before any actual revenue comes in. This can create a cash flow blockage.
Keep your documentation and receipts
While record-keeping might not be the most exciting part of owning a small business, it is an essential one. You’ll need to keep a record of every transaction particularly those you plan to deduct as business expenses in order to have all the documentation you need while doing your taxes. That goes for all obvious business-related expenses, like utility bills and office rent, and all home office expenses you plan to claim on your taxes. You could choose either to do it yourself or hire an accountant or bookkeeper. You might want to do both by keeping your own books and hiring an accountant to prepare year-end financial statements and tax forms. That doesn’t necessarily mean you need to keep a gigantic stack of receipts on hand at all times. Use accounting software such as Quickbooks or Quicken because they’re easy to use and makes bookkeeping almost enjoyable. Most accounting software programs allow you to create invoices, track bank account balances and merchant account information, and keep track of accounts payable and receivable.
Create strategies to boost Cash Flow
It goes without saying, managing your money is more than just maintaining it. You need to think ahead and boost cash flow and guard against times when business is slow. There are so many ways to boost cashflow. For example, you can provide discount incentives to customers or develop a rewards programme to encourage customers to pay early. You can also add additional services in order to broaden your market appeal to customers within your industry. Maybe you can even secure a line of credit for times when business is slow.
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Grow your profits
Your cash flow is up, now maximise your earned profits once they’re banked. A significant portion of your liquid assets stored in a bank savings or checking account isn’t a viable long-term strategy. There are different investment products available to meet your specific short- and long-term financial objectives.
Learn about the various investment vehicles like stocks, bonds and mutual funds as well as CDs and money markets to help grow your business profits passively.
Business might be about generating great products and services. But if you can’t pay your bills, you could be out of business. Manage your money wisely and build a healthy business that benefits your customers, employees, and more importantly, you.
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