Do you experience financial challenges in your business? Is it recurrent? Would you like to know how to manage your business finances?
One major cause of businesses’ financial challenges is poor financial management. This is because they lack the requisite information on how to appropriately allocate the business’s finances to its growth.
In this article, we’ll take a look at the meaning of the concept, why it’s important to manage your business’s finances, and ten tips to effectively manage your finances.
What does it mean to manage a business’s finances?
It means the ability of a business owner to make informed decisions about how to properly allocate and use the financial resources of the business in order to achieve its goals.
This usually involves tips like paying yourself, keeping track of expenses, having a good billing strategy, etc.
Why is it important to Manage your business finances effectively?
Effectively managing your business’ finances is one of the most critical aspects of your business since it offers products, services, or both and effectively uses money.
As a business owner, especially if you’re just starting, you could gain knowledge of basic accounting tasks, drafting financial statements, and loan applications.
With this information, you can establish a stable financial future for your business and invariably avoid failure. However, as your business grows, you will need the services of a professional to handle your business’s financial tasks.
Tips to Effectively Manage Your Business Finances
Money comes and goes, but how it’s handled determines its outcome. One thing that separates a successful business from an unsuccessful one is how its finances are handled. The ten tips that can help you effectively manage your business’ finances include:
1. Pay Yourself
As a business owner, it’s almost natural to want to put all the profits (after paying your employees) back into the business. However, the truth is that you must understand that you have needs that need to be sorted out.
Additionally, you’ll need to practice paying yourself as you pay your employees—this is with a bias for small and medium business owners.
According to a statement made by Alexander Lowry, a professor and director of the Master of Science in Financial Analysis Program at Gordon College,
small business owners shouldn’t overlook their own role in the company and should compensate themselves accordingly. You want to ensure that your business and personal finances are in good shape.”
2. Invest in the Growth of Your Business
Part of your goal as a business owner is to see your business grow. To achieve this, you’ll need to set aside some finances that you could put back into the business—well after you’ve paid yourself.
When you set aside money for expansion, to improve the customer experience, or for a new feature rollout, your employees and clientele will see that you believe in your product or services.
In addition, they’ll know that you’re really committed to your business’ growth, and this can boost their trust in your business.
Read also: Scalability in Business: Key to sustainable growth
3. Keep Track of Expenses and ROI
As a tip to effectively manage your finances, you need to keep track of what you spend money on that concerns your business.
Additionally, you should be able to keep accurate financial records of every money spent on things like salaries, office items, and fuel for your vehicle used for business purposes.
Furthermore, it’s important that you’re able to separate your personal expenses from those made on the business’s behalf. For instance, would it be for business only if you want to purchase a laptop? Having a clear understanding will help you know where to categorize that expenditure.
Moreover, for tracking your ROI, you need to know what effect running ads online has. By tracking which is yielding results and which is not, you can make more informed decisions and prevent wasting finances.
4. Take Loans when Necessary
Many small and medium business owners are uncomfortable with the term “loan.” They may be skeptical of “taking a loan” to manage their finances effectively.
One of the reasons they are skeptical about taking a loan is the uncertainty of the business’s outcome. Some of the questions that may arise include: What if the business doesn’t succeed, or what if the business doesn’t meet expectations? How do I pay back?
Well, it’s not entirely untrue; however, the idea here is to look at your business and decide whether you need a loan.
Moreover, there are different types of loan systems available in your country. All you need to do is seek the best fit for your business and make appropriate decisions.
5. Optimize your Payroll Process
If you want to manage your business finances effectively, then you must optimize your payroll process. This means you must seek the best and most effective payment method.
One thing that deters a business is the complexity of its payroll systems which often leads to confusion and inevitably causes issues with their finances.
Additionally, as a business owner, you must identify how you pay your employees, whether weekly, bimonthly, or monthly.
Suppose some employees have different payment schedules. In that case, you’ll need to clearly identify them and then use updated payment system software to optimize the process.
Sometimes, it’s advised that small and medium businesses outsource their payroll processes to companies that handle such tasks.
6. Have a Good Billing Strategy
How do you manage your billing system? Do you have to call your customers to inform them when they should pay the money they owe your company? What process do you use?
A good billing strategy will help you effectively manage your business’s finances. Just like you can automate your payroll process, you can also automate your billing system.
When doing so, it’s important you take into consideration how your customers get to pay for the product from you, how they receive the invoice, billing reminders, and if there are billing cycles.
Moreover, it’s important you communicate with them properly about what’s obtainable and what’s not in your billing strategy.
7. Keep Track of your Records
As a small or medium business owner, it’s important that you make time to track any form of company record if you want to manage your business’ finances effectively.
Records such as financial, accounting, and income and expenditure records are essential in managing your business’ finances. This act informs you on how well your business is doing and what areas need attention and adjustments.
8. Spread your Tax Payments
If you’re starting a business or already have one and are still in the infant phase, it may be difficult to deal with taxes.
Many reasons could make it challenging to pay all your taxes at once, especially because of the total cost you incur from running your business monthly. You should spread your tax payments over time to manage your business finances effectively effectively.
However, this depends on whether you get clearance from your local tax office to pay your taxes in instalments. Hence, you should ensure to get this information, as some countries do not permit such acts.
9. Make Future Plans
One way to effectively manage your business’ finances is to make plans. Since you’ve studied your business, considering its net income and net expenditures, you should be able to plan.
What heights do you want your business to attain? What are the achievements that must happen on your way to that goal? All these questions are answered when you make specific, measurable, achievable, realistic plans and have a time frame attached to them.
10. Create a Cash Flow Statement and Forecast
As a business owner, your journey to effectively managing your business’ finances will be successful when you create a cash flow statement. This comprises information from all cash-related income, such as investment, financing, and operations.
When subtracting your net expenditure from your net income, you can know your net profit. With this, you can create a cash flow statement where investors can see and invest.
Aside from investors, your cash flow statement can help you monitor and forecast your business’ finances.
Read also: Cash Flow Management: Key to business success and stability
Conclusion
Businesses will do better if they are able to handle their finances better. This entails understanding why they need to manage their business’ finances and the tips they need to follow to achieve this.
Furthermore, your business’ finances should improve when you follow these tips seriously.
