Knowing a few smart money management skills can have a huge impact on the financial success of your small business. Here we discuss simple and effective money management skills to drive your business’s success.
Having financial experts evaluate your business’s finances can be invaluable to its financial health. But without applying a few practical money management skills on a day-to-day basis, this financial planning could be undermined.
Separating business from personal
One simple skill is keeping your business’s finances separate from your personal finances. Without a clear distinction, you run the risk of potential tax and personal liability problems and jumbled account records. Keep your finances separate by having dedicated business bank accounts for exclusive business use. To ensure there is no crossover, create a personal expenses budget as well as a business expense budget and have clearly defined uses for both.
Budgeting should be an important financial management concern for every small business operator. The difficult thing here is knowing where to allocate your expenses. The best approach is to document your budgeted expenses in a spreadsheet by averaging past expenses, or in the case of a new business, doing some research and creating forecasted averages from your research.
Budgeting should be an ongoing process. At regular monthly intervals, compare the actual results from your profit and loss statements to your budget. Be sure to analyse any variances by classifying them as either ‘timing variances’ (temporary expenses) or ‘permanent variances’ and then adjusting your budget to take into consideration what is absolutely necessary.
Take note of categories you might be able to make prudent savings in. Staffing might be one of these categories. It’s quite easy for many business managers to fall into the trap of hiring staff during busy periods only to find they are overstaffed, so be sure to hire extra staff only when absolutely necessary.
Have a trusted financial expert evaluate your financial situation
By negotiating terms of agreements with vendors and contractors before signing with them you can tip financial contracts in your favour. For example, rather than accepting terms for the immediate payment of goods and services, you could negotiate a 30-day payment period that gives you some leeway in tough times.
However, while it’s nice to have flexibility in payment terms, paying your bills on time can save you considerably in accumulated interest and late fees. The same applies to paying tax.
One other money management strategy that many business owners apply to save on costly interest payments is the ‘just-in-time’ strategy, or JIT. For example, if you need to finance annual overhead costs of $200,000, rather than borrowing all the money in one go, you can apply for quarterly loans of $50,000 and pay interest on the lesser amounts over time.
Enrol in simple courses
Taking a weekend accounting refresher course at a community college or online could be one of the most valuable investments you make in the financial management of your business. By understanding simple accounting, you can better understand how money enters and exits your accounts.
A study of the financial reporting needs of small companies discovered that most business owners do little financial analyses to help them manage their businesses. The study found that roughly half of owners made no use of cash flow budgeting, cost analyses, and cash flow and profit forecasting. This is concerning considering a review of literature of the financial management of small to medium size enterprises worldwide that links these behaviours to better financial management…
The review found that owner managers that had more knowledge of accounting and financial analysis were more likely to keep good financial records and use financial statements to make financial decisions.