There’s never been a more important time to be managing finances for your small business. In these uncertain times, companies need to make sure they’re losing as little money as possible.
While many small business owners are distracted by the day-to-day responsibilities; this leads to some fatal but easily avoidable mistakes when it comes to managing finances.
This article highlights some useful tips for managing money when running a small business.
1. Don’t Discount the Power of Loans
While you might be wary of taking out a loan, you shouldn’t discount how they can help you with money management. Without the financial capital provided by loans, you might struggle to get your business off the ground.
For example, you might need to buy equipment, or you might need to remodel. Things like this will be extremely difficult if you don’t take out a loan. If you’re worried about comitting to a loan, a good finance manager can help to walk you through the process.
2. Don’t Forget to Pay Yourself
When you’re running a small business, it’s easy to put all of your spare cash back into the business. Neglecting to pay yourself can be a fatal mistake as it can exacerbate feelings of burnout.
As a business owner, you have to look after yourself and practice self-care. This is difficult when you’re not paying yourself a salary. When you’re planning your finances, always make sure that you accommodate for paying yourself.
Even if you don’t pay yourself a full wage, you should always set aside something for yourself.
3. Plan For Resilience
The last year’s events have shown that you need to be resilient if you want your business to survive. When managing finances, you need to make sure you have a plan for any unexpected circumstances.
You can’t reasonably predict every possible crisis. In fact, the COVID-19 crisis caught most companies off guard. The proper way to account for these kinds of events is to aim for resistance.
Ideally, you should have enough cash tucked away to survive for a year without any other income. You might also consider diversifying your operations and investments.
4. Take Small Risks
Taking small financial risks could potentially lead to big rewards. For example, consider how rich you could be if you had invested a few hundred dollars into an investment account a decade ago.
Of course, this doesn’t mean you should sink all of your funds into a big risk, big reward venture. Ideally, you should put most of your cash into something relatively stable.
Then, you should put a small amount of your money into taking a number of small risks that could potentially offer a huge payout. This way, you might potentially earn a lot of money due to fluctuations in the market, but you’re not at risk of losing everything if your prediction turns out to be incorrect.
5. Have Good Financial Habits From the Start
Nothing can sink a small business faster than poor money management. For example, if you don’t have a good grasp of where all the money is going, it’s possible for employees to steal from you.
Make sure you have a good system for recording incoming and outgoing funds. This will enable you to quickly identify any financial issues you might have before they can cause damage to your business.
Also, having good financial habits early on will help you to manage your finances properly as your business grows. You might get away with poor habits when you’re a small business, but as you grow larger, your finances will quickly spiral out of control.
6. Consider Hiring an Accountant
If you’re not good with money, consider hiring an accountant. Many small business owners find that managing finances can quickly overtake all other aspects of running the business.
This can be frustrating as you probably didn’t launch your business expecting to spend all day managing finances. Hiring an accountant is a great way to free up your time to focus on what matters – the day-to-day operation of your business.
Also, accountants know a lot of ways to save you money on things like taxes. These techniques usually require a lot of knowledge and expertise, so you may not be aware of them if you tried to handle your own finances.
7. Inventory Management is crucial when managing finances
Small businesses can often fail because they didn’t manage their inventories correctly. Ordering too little or too much of an item can cost your company a lot of money.
Having a good inventory management system can help to ensure this doesn’t happen. Consider investing in some good inventory management software. This will help you stay on top of how much you have and what needs to be ordered.
Trying to do inventory management without digital assistance will inevitably lead to mistakes no matter how detail-oriented you are.
Managing Money is Crucial
As you can see, money management is crucial if you want to keep your small business afloat, especially in these uncertain times. The key is to make sure you get things right while your business is still small.
Don’t make the mistake of thinking you can simply work things out as your company grows. This can often lead to financial “black holes”. Also, don’t be afraid to bring in some professional help.
The world of managing finances is incredibly complex. It’s not really possible to be both a financial expert and a small business owner at the same time.
If you need a loan to help get your business off the ground, check out our business loans page.