4 Pro Tips for Effective Small Business Financial Management in 2020
Starting a small business is anything but an easy experience. It’s one of the most daunting and challenging things anyone can go through. Starting a small business is an intense process of thinking on your feet, making smart decisions, and learning about things you never thought you’d think about.
Not the least of which is small business financial management. As a company, everything comes down to the mighty dollar and your decisions should focus on making a profit. And to know what will make you a profit, you need a deep understanding of your finances in the first place.
To help manage your small business’s finances well, you need a deep knowledge of the money that goes through your company. You don’t need to be a financial expert to ensure your business makes money. Instead, you just need to be an expert on your company’s own, unique financial situation.
Some financial management tricks can help, too! And to learn about some that can help you stay profitable, just keep reading below!
1. Account for Everything, not Just Finances
The first part of staying profitable and managing your company’s finances well is also the simplest. You must maintain detailed accounts of all the money that moves through your company, no matter how small or insignificant. Whether you make a multi-million dollar deal or buy coffee on company credit, there should be a record of it.
To make your accounting as detailed as possible, you should consider digitizing as much financial information as possible. Few businesses handle actual cash in modern markets, anyway. Taking your company’s finances online allows you to automatically track any money that leaves your company.
Yet, it’s up to you to keep track of any inbound funds that come your company’s way. Make sure to keep track of how deals are split up and that you put knowledgeable people in charge of project budgets. Keep track of every step of how your company’s income is used, so that you can tell where your strengths and weaknesses lie.
Big Things Can Impact Your Small Business’ Finances
Just keeping track of your company’s finances isn’t the only part of managing your company’s finances well. Just like how you account for all financial transactions, you also need to account for industry updates.1 Securing your finances means preparing for the future, and you must stay on the pulse of your industry to learn about it.
Account for new market trends or new technologies introduced in the industry. When you keep up with your market, you can prepare for the future and put money where you will need it most.
2. Small Business Financial Management is About Budgeting
The second most important aspect of managing your small business’s finances is similar to accounting. However, instead of keeping track of where the money goes, it’s about deciding where it’s needed most. To manage your company’s money well, you must learn how to budget it.
Identify projects that may require additional funds to be completed, and try to find ones that may be overfunded. Budgeting is about balancing your company’s funds with its unique needs. Over time, you’ll develop a sense2 for when a project may need a bigger budget and when one can be done for less.
You should also budget appropriately for workers, and for yourself. Over time, your employees will earn more skills and will become more marketable. They will earn raises and you will too, so make sure to plan ahead for it!
3. Separate Your Professional and Personal Life
Managing your company’s financial situation takes a clear head and most of all, time. Making sure that all of your projects are funded and that all of your employees are paid puts a lot of stress on you. Over time, that stress can wear you down and impact your decision-making skills.
Make sure you leave stress at the workplace3 and that it doesn’t interfere with your personal life. If it does, you will never be able to destress and your performance at work will suffer. You won’t be able to manage your company’s finances well, and you will end up hurting your company.
Distance Will Help Your Company’s Health and Your Own
Taking care of yourself is the same as taking care of your company. It needs a leader with a clear mind and a vision for the future. If you get stressed at work, you won’t be able to be that person.
Create distance between yourself and the company by maintaining separate bank accounts for your personal life and professional one. Leave the office by a specific time, and never bring work home with you. There will always be time to complete it later, and if you need to destress over something, take care of that first!
4. Always Pay Yourself First and Fairly
Some company leaders are willing to forego their own paychecks to keep the company going. They love the work they do too much to see it fail. Yet, their company should never reach such a desperate level in the first place.
If you reach a point where you can’t pay yourself, then it may be time to consider moving on. Yet, if you consistently pay yourself, you won’t need to worry about reaching that point.
You will be able to set money aside for the company when you pay yourself first. Taking around 10 percent of the profits from your company and placing them in a personal account can provide a cushion of savings to fall back on in case you need them.
When setting this money aside, you may even consider building a retirement account, or building an estate. This could make for a great personal investment- but use caution if using this as a safety net for your business, since some accounts will incur a penalty if funds are accessed too early.
That said, always keep in mind what is best for your business and your employees when setting profits aside. Your employees work hard, and they deserve to be paid for it. And if employees start believing that they’re paid unfairly, it’ll cost the company more than simply giving them a small raise.
Starting a Small Business Costs More Than Money
Starting a small business costs time, effort, and willpower as well as money. Just because you took out a loan or put down the cash for an office doesn’t mean you’ll be successful. A successful company is only made with effective small business financial management.
With clever decision-making, strategic thinking, and healthy finances you can take your company to incredible heights. It also helps to have experienced professionals at your side to guide you along the way. We can help you.
Contact us if you just started a business and are worried about managing its finances. We may be able to help you grow it from a small business to a major player in your market!
1 “8 Easy Ways to Stay on Top of Industry Trends”, Anonymous Square, October 19, 2016
2 “7 Tips to Create a Budget for Your Project”, Tim Clark Liquid Planner, September 10, 2013
3 “Separating Your Personal And Professional Life: 31 Outstanding Tips”, Team The Wisdom Post & Sophia The Wisdom Post, September 8, 2017