Small business owners need to be mindful of their spending and prioritize cash flow. Money management is a key aspect of small business and can make or break you.
Here are nine money management tips to keep you in the black:
#1: Keep Expenses Low
One of the best things you can do financially is to keep your expenses low. The less money you spend regularly, the more money you’ll have to invest in your business and take advantage of opportunities that come up.
Keeping costs down also means that everything operates more efficiently; fewer dollars go out means less waste and fewer mistakes.
#2: Develop Systems for Checking in on Spending
When you’re not in the office, it’s easy to forget that there are expenses to be paid. Not having regular expenditures documented in your accounting system makes it impossible to know when bills are due and how much money needs to come in each month to cover them.
Develop systems for checking in with your business at least once a week; check credit card balances, make sure all outstanding invoices have been entered into your system, etc. It can help you track worker hours worked vs. hours billed (in the case of consultants), inventory levels, sales performance, and more.
#3: Group Expenditures By Categories or Designate Funds
Most businesses can save themselves time and money by grouping expenditures by categories and designating funds. For example, if your business revolves around social media, you can designate one fund for social media-specific expenses in addition to your general fund.
That way, you have a system in place that makes it easier to follow transactions and know exactly when bills are paid so you can budget according to when they need to come in.
#4: Start With Your Savings Account
After starting your small business, the next most important thing is to save money for tough times — but most new entrepreneurs don’t do this.
They keep their money in checking accounts and spend it, only to find themselves scrambling when the inevitable happens, and they need cash to pay rent or cover payroll.
The best way to start is by keeping a separate savings account. It will help you stay on track for your long-term goals and give you an incentive to save money throughout the month.
#5: Pay Yourself Before Anyone Else, Even Taxes
Think of yourself as the CFO (chief financial officer) of your company and treat yourself accordingly — meaning that you take care of expenses like taxes, benefits, and perks before anyone else.
When setting up the books for your small business, make sure you designate an “owner’s draw” on each accounting period so you can take money out of the business before you go to expenses, payroll or taxes.
#6: Set Up Project-Specific Accounts
If your company does consulting work, it is crucial that you keep track of each client separately, so they do not become muddled together and harder to manage for tax purposes.
The same concept applies if you have projects or events that bring in revenue — set up an account for each project so you can track all the revenue and expenses related to that specific event.
#7: Utilize Internet Banking and Accounting Software
By using online banking and accounting apps, you can set up direct deposit for your paycheck, automatically pay bills online and update your books in real-time.
These types of services make keeping track of expenses much easier and provide a level of accuracy that is impossible to achieve with manual bookkeeping methods.
#8: Get a Credit Card if You Don’t Have One Already
If you don’t have a credit card already, now may be the best time to get one. Not only can they help you manage expenses as mentioned above, but they also give you rewards on purchases — which is another valuable source of savings.
Make sure to compare different cards before selecting one so that it provides the most benefit for your small business.
#9: Follow the 80/20 Principle
The 80/20 principle states that you can accomplish a lot in your business if you focus on just 20 percent of what needs to be done.
For example, by focusing on only 20 percent of your accounts receivable or 20 percent of potential customers, you can increase profitability while reducing miscellaneous expenses.
By putting the nine tips above into practice in your own company, you are sure to see an increase in revenue and decrease in expenses, making it easier to keep track of money coming in vs. going out (which is everything when it comes to managing small businesses).
