We often look at money management as a subject of personal finances. When you start a business you will soon realise that you have the finances of a separate entity, legal or otherwise, to deal with. While some principles of finance apply universally across persons and businesses, they may need a little explaining to relate them completely. At the end of the day, you do need to think about money management in a business and here are some tips that you should take heed of when it comes to managing your business’ money.
Create a budget
The cornerstone of any financial plan is a budget. Business budgeting is a little different from personal budgeting but only a little. For example, how much you allocate to advertising can impact how much you make in the following period. So business budgeting is not about cutting off expenditure but rather directing expenditure. To be fair personal finance budgeting is only mischaracterised as being about cutting off expenses.
Stay ahead of deadlines
One thing you will need to get right is staying on top of and ahead of your deadlines. A missed deadline can have many adverse consequences including being cut off by suppliers, ruining your creditworthiness and having discussions with the tax collector. None of these is desirable. So keeping on top of your deadlines for payments and other requirements is important to keeping your business finances right.
There’s no better way to put this. When we talk about personal finance I have many times encouraged tracking your expenditure as the first step to fixing your finances. In business, you really have to track everything. Track your expenditure. Track your revenue. But don’t stop there. Also, track the drivers of the revenue and the expenditure. Track every single thing. It will be worth it.
Separate the business from yourself
This is something many people learn a little too late. Yes, it’s your business and let’s face it you started it at least partly to improve your finances. However, that doesn’t automatically you and the business are inseparable. The business has to be accounted for as a lone standing entity to see if it’s making any sense. This separation should not just be academic but real.
Cut costs, the right way
Profit is not a complicated concept in business, make more than you spend in the process of making the money and you have profit. The key to this is keeping costs down as much as possible but you want to make sure you do this in the right way. The right way is of course is not compromising on the product quality but rather negotiating and shopping for better prices and deals.
This needs little explanation. Sell more of whatever your business sells to more customers and you will increase your revenue. How to get there isn’t so easy though. One thing that ties into your finances is not ignoring your customer acquisition cost. There is the cost to acquiring customers whether it’s through advertising, discounts, promotions, product placement, social media management, digital marketing or some combination of these.
Saving is a very important though massively underrated activity in the management of personal finances. When it comes to managing business finances saving is equally and perhaps even more important. If the goal is to get the business to stand on its own feet it needs its resources to do so. Saving gives you that ability.
Reinvest in the business
Pay yourself, yes. Save money, yes. Remember to also reinvest in the business. Knowing what’s available for saving, investing, paying yourself is very important because you must keep investing in your business. If the business brought you this then investing more in it will bring you more.
Time is money
The thing with small businesses is you are starting and you will wear many hats. Should you be wearing every hat you wear? If you are good at performing the task then go ahead. Sometimes it’s better to engage someone else who can do the work faster and better and allow you to focus on what you’re great at. Time is money.
Watch your cash flow
Cash flow and profit are different things. A business can be very profitable and run out of cash. So in addition to watching for profitability, you also need to stay on top of your cash flow.
Follow these tips to get a grip on your business finances. The goal is to get your business financially stable and solvent and then grow it. Take care of it and it will take care of you.