Financial management is highly important for any business. Furthermore, it is even more important for small businesses that lack the size and have less access to the financial markets. Small business owners can find a lot of benefit by learning how to properly manage the finances of their business. This helps improve financial results, resilience of the business and improve relations with customers and suppliers. In addition, the improved financial management will result in more income and higher compensation for taking risks. This article provides 10 tips on how to manage small business finances.
1. Invest In Growth Opportunities
The first tip rests on growing your business. It is worth investing in good investment opportunities that are likely to yield good returns. You will benefit significantly if you set aside some portion of your capital and invest in the growth. This will allow your business to expand with low risk and high potential returns on capital. Most attractive growth opportunities will provide decent reward. In addition, investing in the future improves attractiveness of your business.
2. Consider Both Risk and Returns when Managing Your Business Finances
The second tip is to prioritise risk assessment when making investments in the growth of your business. When choosing investment opportunities, it is important to look at both risk and return. Some great opportunities can be highly profitable but very risky at the same time. Hence, effective financial management of your small business involves both investment management and risk management to reap the most benefits from your venture. IN addition, risk assessment will ensure that the business will work out and do not ho bankrupt, which is a bog achievement for a small business. Most ventures go out of business in a relatively short period of time, so managing your risk will increase the chance for success.
3. Spreading Out Tax Payments
When managing a small business, it is important that your business is liquid to pay all short-term obligations. Tax liabilities are one of them and you cannot avoid paying taxes. There are different payment schedules available to businesses. You can pay taxes quarterly or choose the monthly payment option. By spreading the tax payment, you increase survivability of your small business. It is easier and less pressuring to pay taxes monthly but with a lower amount than to pay quarterly with a relatively large amount that can be difficult to manage. Therefore, the monthly payment schedule leads to better liquidity and less pain to the owner.
4. Monitor the Finances of Your Business
A great advice to any business owner is to regularly monitor the finances of the business. It is crucial for long-term success to monitor how your business performs and how it generates income. In addition, monitoring of the books allows you to see how to improve financial performance of the venture. This helps identify the key sources of revenue and major cost sources. Financial monitoring also helps optimise the business by leveraging strengths and minimising the loss from weak sides of the business. This tip will also enable you to improve your controlling to ensure business success.
5. Set Up Positive Financial Habits
As an owner of a small business you need to set up some positive financial habits to ensure the business is managed effectively. Financial habits may include keeping a minimum cash reserve on the account to finance any emergencies that can arise. Another financial habit may be to never extend receivable beyond a certain date to ensure the finances are stable. Financial habits must help establish financial discipline, which is critical for long-term financial success.
6. Control Your Expenditures and Focus on Returns
It is critical for a business owner to manage expenditures. The objective is to minimise costs thereby optimising profitability of the business. In addition, it is a good habit to focus on return on investment (ROI) when choosing and appraising investment projects. Ignoring returns on your projects, you magnify your financial risks and expose your business to a failure. Therefore, cost management and focus on ROI can have a positive impact on your business.
7. Keep Improving Your Knowledge Base
Managing a small business takes much knowledge. Furthermore, as a small business owner, you will dramatically expand your knowledge base. You will gain knowledge in both the operating side of your business and the financial side as well. Therefore, business ownership provides an opportunity to learn and compensates for gaining knowledge. The more you learn as a business owner, the more effective your business will be and more profit you can generate. This means that gaining knowledge pays off. Taking an MBA course in finance can help you better master financial deals of your business to significantly improve quality of your financial management.
8. Plan Your Business
Financial planning will be crucial for business success. The first step is to create a financial plan for your business. This will provide details on how you are planning to satisfy customer demand and generate profits form your business. In addition, planning does not stop at the early stage of your business. It will be highly valuable to make financial projections in the future to see where the funds come in and go out. This will help you identify sources of revenue that will help enhance the survivability of your venture.
9. Use Mobile Applications to Improve Financial Management
There are many different mobile applications that can be free of charge or cost a little. It is important to incorporate these programs in your daily business life to be more proficient at managing finances of your business. A simple example is Excel that helps you evaluate different projects and build the budget to effectively manage the business.
10. Pay Yourself First
The final tip is to reward yourself for any achievement no matter whether it is small or large. When you run a business, you invest more than money. You put your heart and your soul in running the venture. This means that it is crucial for your success to pay yourself first thereby keeping your motivation high and compensate for your risk and hard work.
