Five financial management tips for small business owners
Setting up a new business is never easy. One of the challenges is managing finances – making sure that financial stability is guaranteed while investing in the growth of the business.
Putting a solid and prudent financial management in place is key for any business, but for small business owners, it can prove to be the difference between success or downfall.
One of the key challenges business owners face is that they aren’t financial experts, meaning that they have to invest in making sure that their ‘money management’ strikes the right balance between investing and saving.
For those facing this trade-off in practice, here are five financial tips to consider:
Separate personal funds
Rule number one for owning a business; never mix your business funds with your personal ones. Mingling the two together can mean that you lose insight in the company’s financial revenue and cash flow, and that you overstate (or understate) personal wealth.
Further, in the case the company has debt while starting out, its debt may become your debt. Mixing business with personal funds will make it harder to reconcile the financial records, and thus knowing what the split is between personal and business assets. So avoid the mistake of combining both accounts and use a separate bank account specifically for your business.
Live frugally
In the initial months or years, when your business is still in the start-up phase, ensure to keep your costs down. Even if you have personal loans to support all your business purchases, new costs can always occur. So it is best to keep investing money in your business and stop investing in yourself until you’re the successful entrepreneur you dreamt of.
Keep gifts and rewards for when you have achieved a milestone or goal. This way, you can save without overspending.
Pay off debt
Debt is never good for a business. So for any debt, ensure that you have a feasible repayment plan in order to get the debt out of the way as soon as possible. It is recommended to first focus on debt agreements that have the highest interest rates, and then follow up on debt agreements with more favourable terms.
Maintain a cash reserve
A cash reserve can be like a savings account for your business that can help you in emergencies when there isn’t another way out. This can be essential for companies as you never know when an emergency comes up – in the case you have invested all your revenue then you might face financial issues. Keep putting some part of your profits aside to cover for uncertain or challenging times.
Always budgeted
No business or individual with limited resources can function without a feasible budget. Budgeting makes everything productive and helps you stay goal-focused. You will be less frantic while handling your business and expenses as you know exactly how much money is being spent and on what items. Create a workable budget around all expense items, and work out profits for the business and yourself.
