The importance of managing small business finances
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Managing small business finances is essential to the long-term sustainability and growth of your company, but it is also one of the most challenging tasks for businesses across industries. According to the latest “State of Small Business Cash Flow” report from Intuit Inc., as many as 61% of small businesses around the globe struggle with cash flow, whereas 32% are unable to either pay vendors, repay loans or pay their staff due to cash flow issues.
As a millennial running your own company and building your brand, it is essential to keep tabs on your finances, and there are several ways to do this with ease and accuracy. Here are the top five tips to help you manage small business finances and remain in the top industry tiers in the years to come.
Make business financial plans a priority
To climb to the top of the industry ladder as a small-business owner, you will need to tackle budgeting, accounting, financial forecasting, tax planning and risk management. All of these are covered in your business financial plan and need to be addressed with due care and foresight. To achieve peak financial results, you need to analyze accounting reports and financial statements to get a good insight into your company’s performance.
In doing so, you will be able to customize your financial goals and see whether you need to allocate more money in your business budget for things like buying new inventory, hiring new employees or expansion, or if you can save some cash for retirement. To stay on top of all the aspects of business finance, you should prepare in advance and keep well-organized business records.
Custom-tailor your budget and stick to it
Creating a business budget will allow you to better handle cash flow and expenses. In addition to helping you forecast revenues with greater accuracy, it will also allow you to identify and cut unnecessary expenses before you get into debt. For the best results, you need to custom-tailor an operating budget that lists expected revenues for an entire financial year.
The budget should contain essential details about fixed and variable costs and running expenses. Your operating budget will serve as a tool that will show if your business expenses and revenues are compatible with your financial plan and ensure your company maintains high liquidity as time goes by. Ideally, you should go back to your budget every once and a while and make tweaks based on real developments.
Look into lines of credit and find the best fit
Short-term financing options such as a line of credit can also be useful when managing small business finances with growth in mind. In case you need additional funding, credit lines can be helpful, but do note that it will be necessary to repay them at some point, which is why you need to do your research well ahead of the maturity date and pick the line of credit with the lowest interest rates.
Additional funding in the form of credit lines will come in handy when tackling short-term requirements such as maintaining inventory, salary payments, meeting new orders or controlling cash inflow throughout the year. If you hit the rocks or face unexpected delays in collecting payments from your clients, you can also consider debtor finance as a short-term solution to help you navigate business spells with lower than anticipated revenues.
Separate your business and personal finance
A common mistake millennial business owners make is to mix personal and business finances. In the best case, this can make it difficult to keep track of cash inflow and expenses, but in the worst-case scenario, this can result in diminished liquidity or even bankruptcy.
To stay on top of your small business finances, you will need to keep your business and personal resources separate. Failing to do so can result in overspending or situations where you will use business funds to cover personal expenses and vice versa. In addition to that, keeping business and personal finances separate will let you claim tax deductions for certain business-related expenses and thus slice the risk of losses in the long run.
Get your business inventory analysis in place
One of the cornerstones of your brand’s longevity, inventory management needs to be correctly taken care of if you want to achieve steady success and secure long-term growth. Your supply chain will be on the right and sustainable track with accurate inventory management.
On the other hand, failing to get your inventory in place can result in mis-shipments, out of stock orders or overstocking and financial inefficiency. This can chip off chunks of your company’s reputation and cause huge losses down the road. For this reason, it is highly advisable always to have your business inventory in place, or productivity might suffer and cost you a lot of time and resources down the road.
There are several ways for you to keep your business finance management shipshape. Make timely budget plans, create a budget to adhere to, find the best line of credit or additional funding option for your business bills, keep your personal funding and business finances separate and have the business inventory in place. By following these steps for managing small business finances, your brand should thrive and grow.
This article was contributed by Lilly Miller, a graphic designer and a passionate writer who loves everything about home décor, art history and baking. Lilly shares her home with two loving dogs and a gecko named Rodney.
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