Money management can be a massive headache for many small business owners. In fact, many tend to have somewhat of a lazy attitude towards their finances and kind of ignore it rather than working out how to effectively manage it.
However, it’s an area of your small business you can’t afford not to manage properly. If you don’t, it can end up getting out of control, and you’ll find yourself with all sorts of painful financial difficulties that could have been avoided.
With the following money management tips, you’re about to discover how you can effectively manage your small business finances.
Know Your Operating Costs
You need to get a handle on your business’ operating costs if you’re going to be able to manage your finances properly. Work out what your overheads are. Do you rent an office? Do you need to pay monthly internet bills? Weekly wages for staff?
Whatever it is, write it out in a spreadsheet or use accounting software to make sure you know upfront how much your operating costs will be each month.
Once you’ve worked this out, you’ll know how much money you need to take out of your monthly income to cover your operating costs. This is one of the most simple money management tips all small business owners can follow.
Cut Costs Where Possible
This can be a double-edged sword because it can help you save money but it can also damage your business. For example, the first thing many businesses do when they experience financial difficulty is cut costs to their marketing budget. However, this can also be a double-edged sword in that it can affect how many customers you’ll get, thereby limiting your earnings potential.
However, there may be things in your business you don’t really need. For example, do you really need to pay rent for an office? If you run a business that isn’t restricted by location, it will be cheaper for you to move out of an office and work from home. This saves you office renting costs and any others that may be associated with renting the office space.
Look at what you’re paying for. Are you paying too much for the Internet? Maybe you can get by on a cheaper Internet plan that doesn’t sacrifice on quality.
These are the kinds of things you must consider when looking to cut costs. Just make sure that any cost cuts aren’t going to affect the growth of your business.
Track Your Spending
Track and measure everything. Track the money that is coming in and the money that is going out.
This is really the only way to get a grasp on your finances. If you don’t do this, you won’t know what are necessary and unnecessary costs.
For example, you may realise that Facebook advertising is giving you the best return on investment (ROI) out of all your advertising campaigns. So then you could reduce your spending on other advertising campaigns and put more money into Facebook ads.
However, the only way to know something like that is by tracking and measuring all your income and expenses.
Use Accounting Software
There are now many different types of cloud based accounting software you can use. Of course, you can continue tracking your finances using an Excel spreadsheet but it’s going to be tedious and time-consuming. Whereas, using an accounting software is almost like having an accountant working for you, managing and working out your business expenses and operating costs.
For a small business owner, investing in accounting software is a must if you want to get on top of your finances.
Get Professional Help
Maybe an accounting-based software just isn’t enough and you need professional help. If so, there is no shame in admitting it so don’t be afraid to invest in a professional accountant to help you manage your business affairs.
Sometimes, a business needs this level of personal involvement from a professional to get on top of their finances. If this is you, don’t hesitate to invest in it. Whilst it costs you money for their services, it often ends up saving you money in the long term because they’ll identify legal ways you can cut costs that won’t affect your overall profitability.
Keep Your Personal And Business Expenses Separate
You need to have a bank account for business income and expenses and one for personal income and cost of living expenses. The last thing you want to do is start lumping all your business income and expenses into your personal bank account.
It will become a gigantic mess that you won’t be able to manage properly. Open a business account and only include business income and expenses for that account.
Sort Out Your Taxes
This is one of the most important areas of small business finances. Make sure you know in advance how much you’re required to pay in tax each financial year. This is mostly determined by the business structure you choose and each tax bracket varies.
Even consider creating a bank account just for taxes. Work out what your taxes need to be each quarter and put your money for taxes into that bank account. It’s the easiest and most hassle free way to manage this area of your business finances.
Only Hire Staff You Need
Don’t go all crazy and start hiring too many employees or employees you don’t even really need. If you’re just starting, only hire the employees that will help to make the business a success. Remember, the more employees you hire, the more taxes, invoicing, and other financial responsibilities you’ll have.
If you’re already an established business then make sure you only hire employees when you start seeing some business growth. Even hire someone as a freelancer in the beginning until you can really gauge the business’s growth. Then if it continues to grow as you expect, you can always hire that freelancer as a contracted employee.
Final Words: Money Management Tips For Small Business
If you follow all of these money management tips above and implement them, then you’ll have no problem managing your finances comfortably each month. If there is anything you’re unsure about regarding the legalities of managing your finances such as taxes, employee payments, and anything else then get in touch with us.