An important aspect of running a business is managing its revenue. Failure to properly manage the financial resources of a business will ultimately lead to the failure of such business. While it is important to be innovative in handling a business as well as producing quality products, it is equally important to judiciously manage the capital resources of your business.
How to Manage your Finances as a Small Business in 2024
Study Finance
You can never fully understand how to manage your finances as a small business owner if you do not gain the necessary education for it. It is as Peter/CXO Advisory puts it " Financial literacy is crucial for small business owners; understanding your numbers empowers better decision-making". Learning how money works and the best ways to manage expenses will empower small business owners to make the right choices with their finances knowing what to invest in, how to invest in anything as well as whether or not their business needs a loan: how much is necessary for their business, whether or not it is advisable to hire employees or partner with other firms, etc.,.
Some online institutions where small businesses can learn how to properly manage their finances include: Edx, Khan Academy, Udemy, Coursera, and Alison. Though this is not an exhaustive list as there are other sources, these sites stand out as a result of the numerous positive reviews that ascertain their credibility.
Take Loans
Part of running a successful business is knowing when your business needs a loan and how much of it is fit for your business as well as what term of loan is appropriate for your business, and the capability of your business to pay back. This is exactly why financial education is crucial for small business owners because knowledge of finance will better inform them on choices to make regarding their financial resources. Business owners with knowledge of how finance works will be able to determine the amount of loan their businesses need. Little wonder Eric T. Wagner says: " Smart small business owners differentiate between good debt that helps grow the business and bad debt that hinders it". Of course this would depend on the strength of your business, whether or not your business is capable of repaying the loan it intends to opt for as well as the interest rate of the loan.
Another factor to consider is whether to go for a term loan: loans that are collected in large quantities and payed back overtime, loans from credit unions: organizations of individuals with similar interests that pull resources to assist one another at moderate interest rate, and lines of credit. Not only can loans help small businesses achieve feats that would seem impossible for them on their own but it can also help them develop at a much faster pace.
Monitor Cash Flow
You cannot afford to turn a blind eye to the flow of cash in your business. Knowing how much money leaves and comes into your enterprise is crucial for business growth. This is because being informed about your financial expenditures and the inflow of cash into your business will help you understand the areas that have higher return on investment (ROI) as well as areas which do not. This will help small businesses plan on areas that need more funding and those that do not.
Also, you will be able to ascertain whether or not your business is making profit. This is particularly important for businesses with employees. Monitoring cash flow will help you keep a check on the activities of your employees and you will easily detect phishy activities within your business—you cannot be cheated.
" Cash flow isn't just king; it is the lifeblood of any small business ". Unknown
Some applications that can be utilized by small businesses in monitoring their cash flow include: PlanGuru, QuickBooks, Float, Agicap, Caflou, Causal, and Dryrun among others.
Plan your Finance
When you fail to plan, you plan to fail. Planning your finances for the fiscal year is a good way to ensure that you do not spend unnecessarily or spend on irrelevant things. It is crucial for business success that business owners plan their expenditures and then formulate a budget for their businesses.
When you have laid out your expenses for the fiscal year, you can channel resources to areas that will lead to an increased return on investment. You will also be able to monitor where your finances are going to and which areas you would need to invest more of your capital in.
It is just as Dave Ramsey puts it, "A budget is telling your money where to go instead of wondering where it went". Budgeting helps in keeping a business organized and focused in order to achieve its set goals.
Maintain Good Credit Score
Having a good credit score for your business is a good way to secure your business's future. This is because your business will be eligible for more loans and insurance policies when you maintain a good credit score.
Credit scores are ratings of businesses based on their debt management, financial capabilities as well as other factors that determine their eligibilities for different kinds of loans and grants from financial organizations. Some of the best ways to ensure that your business has a good credit score is to:
- Pay debts early.
- Take loans that you can payback.
- Create a schedule for loan repayment.
- Follow loan repayment policies judiciously.
Adopt Sustainable Practices
Managing a small business that must be successful requires capital. Consequently, entrepreneurs are constantly looking for ways to cut down cost and increase output. Sustainable practices are a great way to help businesses reduce cost while operating their businesses effectively.
Sustainable practices are activities that are geared towards having a positive impact on the environment. This can be achieved through the use of green packaging—using decomposable packaging like mushroom-based materials, green transportation—using transportation that do not emit carbon as well as green electricity for example; solar powered electricity.
Running a sustainable business is a good step for finance management as it will help small business owners save up capital to invest in other areas of their business that will result in productivity such as: purchase of operational materials, expansion of business reach, investing in other ventures among others.
Improve your Business
As a Small business owner, you must be receptive to change. You cannot but be innovative, always thinking up new and innovative ways to do things. It could be how you package products for your customers, the customer service you render to them, anything.
Improving your business periodically is a great always to grow as sticking to one practice will give customers the feeling of stagnancy which is bad for business. Developing your business is a good way to manage your finance. This is because you use money to get money and if you want to raise your prices, your business establishment should look the part. The difference between a ShopRite branch and a local mart in price is packaging. The way you present your business can go a long way in convincing your customers to accept your prices even though they can get it for less elsewhere.
Self Payment
Investing all your finances into your business without providing your self with any form of settlement is bad finance management. Part of properly managing your finances as a small business is that you pay yourself just as you pay your employees and suppliers.
Paying yourself will give you a sense of achievement and you would have tangible proof of the results of your efforts in your business.
While most small business owners like to invest every single cent in their name in their businesses, it is important that business owners pay themselves because of the possibility their business crashing or going bankrupt.
Consultancy
With all said and done in the preceding sections, it all boils down to consultation. It is said that a jack of all trades is the master of none which is why you cannot afford to overlook the importance of consultancy as a small business owner.
Even with adequate knowledge of the workings of finances, you may not be able to make the right choices in terms of the finances of your business simply because it is not your area of specialization and your knowledge of finance would not be sufficient to make such decisions.
So the right step to take is to consult experts and professionals in the field of financial management to get tips and insights into how best to manage your finances as a small business owner.
Why you should Manage your Finances as a Small Business Owner
- Accountability: A business that lacks accountability is well on its way to failure. By managing your finances, you would be able to account for your fiscal activities over a period of time be it in a day, month, year, etc.,. You would be able to tell how much is spent as well as how much is earned and you will get insights into areas that are performing well and those that are not.
- Organization: Managing your finances properly will establish order in your business. This is because when your finances are being managed properly, decision making will be swift and money will not be wasted. Lack of proper finance management will lead to disorganization as you will be clueless as to where your finances are going and which areas require more funding and which areas do not require funding.
- Discipline: When you cultivate the habit of managing the finances of your business dedicatedly, you become more disciplined in handling your business. It becomes a habit overtime and the reward for such dedication is always astounding.
- Decision Making: You will be able to make better and more informed decisions regarding your business when you manage your finances more efficiently. This is because managing your finances makes you come to terms with your revenue and your knowledge of your revenue will determine whether you need to source for more revenue from banks or credit unions or not. It will also help you keep track of progress in your business.
- Cost Saving: When you cultivate the habit of continuously monitoring your finances, you would be able to save cost in some areas. For instance, you would discover areas that take up most of your revenue and come up with innovative alternatives to them that are cost effective. For example; if you discover that product packaging takes up more of your revenue,you can source for cost effective alternatives like investing in green packaging—packaging with materials made from mushrooms or other decomposable materials.
While the responsibility of running your own business can be very tasking, it is also important that you do not leave out the financial management aspect of your business. This is because you will lose track of your resources and would not be able to tell if your business is making progress or not, whether it needs more funding, or even specific areas that require more financial resources. Managing your revenues will help you keep your business afloat and establish a more organized empire.
Check out Business News Daily's: 10 Tips for Managing Small Business Finance
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