To run a small business, you need to have a few overarching qualities and components. You must have a great idea, exceptional service, and organizational skills.
However, none of those qualities matter if you can’t manage your finances. Even the best ideas fizzle if the underlying money management isn’t in place.
Here are some helpful pieces of advice from business owners about how to manage your small business finances.
Check Your Credit Score Frequently
Establishing credit as a business is paramount to scaling your business in the future. To do this, you have to know what’s happening with your credit score.
Set aside time to check your credit score regularly. This process will allow you to see how you’re trending, and if there are any outstanding issues to deal with. If you find that you have items on your credit score to dispute, try this to get rid of them and improve your report.
Implement a Money Management System
Create a standard procedure for how you deal with the money that comes into your business by implementing a money management system.
This could be percentage-based, having a set percent allocated to various aspects of your business. You could use a Profit First model that ensures the business owner is always getting paid.
One of the most sustainable starting points for implementing a money management system is the jar or envelope approach, in which separate accounts are used for the various expenses and investments within a business. This practical approach is an exceptional starting point for new business owners until they find their footing.
Create a Standard Procedure for Billing
Invoicing and billing your clients is the only way you’ll get money into your business; it’s one of the most important clerical tasks. However, it tends to get pushed off. A day or two here might not seem like a big deal, but when you add it up over the year, you might find a multiple week span for which you should have had cash flow.
Create set dates and times or practices for invoicing your customers. This could consist of weekly batching or dedicated time on the first day of each month. By putting procedures in place, invoicing becomes a habit, and, by default, you’ll get paid faster.
It’s also wise to set procedures for when someone defaults on their payment. Identify who will be following up, the script to follow, and what measures should be taken from there.
Use Projections and Forecasts
Setting projections of what might happen may seem superfluous, but it’s an effective way to plan for high and low seasons. During the first year of the business, this process can be arbitrary and hard to pin down. After that, however, historical data can provide a lot of insights about the future of your business.
For example, preparing for seasonality in your business. If you own a restaurant, your numbers might indicate that the summer and weeks leading up to the holidays are the busiest. January through March is slow. By having this information available, you’ll be able to scale your staffing and food purchases to meet demand and spend or save accordingly.
Monitor Your Expenses
Creeping expenses are a silent killer for small businesses. Doing your taxes at the end of the year is not the time to discover that your expenses are out of control.
Set aside time each month to audit the money that’s going out of the company and why. Make smart cuts on your spending to increase your margins. For example, sometimes it behooves you to have feet on the ground at a satellite office or with a client. However, many meetings could be conducted via video conferencing.
Look at your expenses and consider how you can cut back and stay frugal without becoming cheap.
Stay Organized and Prepared
One of the simplest yet most effective things you can do to manage your money with a small business is to stay organized. That way, when tax season rolls around, you’ll be ready to get the most out of your return.
By practicing these smart money management habits, your small business will thrive.