It’s a challenge to manage cash flow. Being strapped for cash is a situation no business owner wants to be in. However, it’s more common than you think — although it’s rarely discussed openly. The process of dealing with the finances of your business through setting goals, tracking income and expenses, budgeting, and investing all falls under the umbrella of money management.
With a solid plan for money management, you can extend periods of positive cash flow and make sure that your business is on the path to turning a consistent profit. Here are 7 basic money management practices that every business owner should know.
To simplify your money management, invest time into creating a budget. Budgets assist you in setting revenue and expense goals. Then you can see the expenses necessary to keep your business afloat. Once you know how much you’re able to spend, you can more readily manage how you spend it. An effective budget also projects the revenue amount your business is likely to receive. If your revenue is less than you’ve budgeted, then it’s time to decide how you intend to increase income and decrease expenses.
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If you’ve made a choice to offer credit, you know that money may not come in for services rendered or goods sold until the due date or well beyond. Once thirty days have gone by, forgetting about accounts receivable is a danger if you’re not careful.
Record accounts receivable in your books to help you remember. To track receivable totals, draw up a summary. Receiving payments is even more important than tracking. Be consistent about sending out repeat invoices and late notices to customers. Invoice factoring is a good solution for many business owners; knowing how to pick the best factoring company takes careful research.
Are you aware of the amount of money you spend daily, weekly, or monthly? It’s crucial knowledge. Not monitoring carefully can lead to misuse of funds and overspending. Quite a few business leaders have several accounts, such as a credit card account, savings account, and checking account. To stay on top of each account balance, be sure you’re aware of how much you spend or withdraw from each account.
Track all expenses by meticulously managing your accounting books — or get a professional to do it. Simple software can record all transactions. It’s a straightforward process to keep track of spending when you have an expense log.
If you are not sure when bills are due, such as business loan payments, credit card payments, or accounts payable, you may not have enough cash available. The consequences may include added interest, lowered business credit, compromised vendor and lender relationships, and late fees — all of which can set you back considerably. Staying on top of your deadlines is not just an option; it’s vital.
Make a record of when payments are due, and put in reminders so you don’t have a chance of falling behind. Due dates can go on a computer, phone, or paper calendar; it doesn’t matter which medium you use as long as you get on a regular schedule.
It seems like common sense but can be hard in practice: Increase your income and decrease your expenses. Look for every way you can possibly increase revenue and cut costs — get creative. Analyze your expenses carefully. You can cut back and eliminate extras by taking a look at current expense amounts and areas. Some ideas for increasing revenue include adding new products, establishing loyalty and referral programs, offering discounts, or promoting goods and services through social media or by email.
Is your business bank account separate from your personal account? Making sure that’s the case is critical to effective money management, even if you aren’t required to do so. Also, if you want to efficiently monitor spending, track profits, and reconcile your books, business bank statements are useful. You risk overspending and missed opportunities for growth if you mix your business and personal funds. Monitoring money is challenging enough; if you combine funds, it’s difficult to track incoming and outcoming money accurately.
Do you have extra inventory collecting dust in your storage room? Conversely, are you turning away customers due to continuously running out of in-demand goods and/or services? Improving how you manage your inventory can go a long way toward the overall money management of our business. Make it a practice to track the amount of inventory you have so that there’s neither too much inventory or not enough. Have a place in your books to record inventory sales and purchases, and periodically check in with what you currently have before making more orders.
Wise money management is necessary in order for your business to thrive. Consider these suggestions to improve your profits.