Managing small business finances is one of the less sexy aspects of running a business, but it’s the key to long term business success. One of the most common issues we have found among startups is a great deal of financial chaos. Often this is due to the fact that the entrepreneurs behind these ventures did not plan their financial side properly. Some had the bar raised too high or too low in terms of income, some didn’t keep track of expenses, others were not on top of their payment collections.
Most new business owners are preoccupied with their original concept or idea and how to develop it further. Those first tentative years in operation set the foundation for the business’ long-term success. There have been many good companies that have failed because of poor financial management and cash flow issues. If you head into the first year of business not managing your small business finances in the right way, you too may find your startup sputtering soon after it has gotten off the ground.
As business consultants, we at Global Resources Business Solutions, know that a combination of planning, preparation, and solid financial management is the key to a finely tuned company. Here are some of the best tips for managing small business finances the right way:
One of the first things you will need to do is determine just how much you are going to need for this venture. It can be tempting to lower this amount by assuming that you will spend the bare minimum. Unfortunately, the reverse is often true. You may find yourself spending a great deal of money in those first few months, attempting to get the company off the ground. Similarly, you also need to be logical about how much revenue you will be earning. It is going to take you time to build a customer base and get people to notice your company. As such, you may not be making much of a profit for a while. You should plan accordingly.
Many entrepreneurs are not well versed about how to run the financial side of the company. They do not how to read statements, balance the books, or do a variety of other important tasks. This is why you need to take the time to educate yourself. You can follow a short course, ask someone who is already in the business, or read up on the topic. Nevertheless, you need to be well prepared to deal with all aspects of the company’s finances. This will be crucial in helping you determine just how well or poorly your company is doing. Thus, it is a good measuring stick for success.
Separate Personal and Professional
A unique side to owning your own company is that you have invested your own money in the venture. Even if you haven’t, you are still going to have to pay yourself a salary and perhaps even part of the profits. This is where things can get a little murky, especially as you are managing the company’s finances in addition to your own. The best thing for you to do in such a situation is make sure that you keep these accounts separate. This way, there will be less confusion, and you will not get the two areas mixed up.
Monitor and Measure Performance
It is extremely essential that you are keeping tabs on the flow of your money coming in and going out of your business. This starts with having a good accounting system in place, such as accounting software that can create charts of inflows (sales of goods or services) and outflows (accounts payable) for your business and other standard financial reports. Having access to this information will help you to see current and potential cash shortfalls that you can then act on. You should make it a habit of reviewing your company’s financial performance in comparison to the past financial statements to project your future revenue, expenses, and cash flow.
Finally, if you still find yourself being overwhelmed and frustrated by the financial side of your business, or feel that you are doing something wrong, then it may be time to reach out for help. At Global Resources, our team of business experts can help you make sense of your finances so you can make informed decisions. You won’t just be able to take control of your finances, you’ll take control over you business in the most effective and profitable way.
*This article was brought to you by Global Resources.