Whether you’re a designer with a boutique, a chef with a restaurant or any other type of budding entrepreneur, learning the basics of accounting and business financial management is essential if you want your business to thrive.
Luckily, the basics of business finance are all but set in stone.
And once you understand the importance of financial management, you’ll want to get your business in line.
Below are some business financial management tips that work across multiple industries.
9 Business Financial Management Tips that have Stood the Test of Time
Proper financial management sets a plan and structure for your business. Without a measured approach, you could find your business in a bind. Here’s what you need to get started.
1. Realistic Budgeting
A realistic budget is almost as important as your business plan itself. A few hundred dollars here or there adds up, and if you haven’t accounted for those expenditures, your working capital will quickly run dry.
You can set up a budget for your small business using budgeting software like You Need a Budget. It comes with a small monthly cost, but setting a proper budget could more than cover that cost.
Approach expense management with your eyes wide open. Know what your fixed costs are like payroll, rent, and utilities and keep your variable costs such as production supplies, commissions, and travel expenditures as low as possible. Learning how to make a budget and track your expenses is one of the most underrated yet important skills in business financial management.
2. Separate Personal and Business Finances
Avoid combining personal and business finances at all cost. Even if you’re spending from the same account, record the transactions separately. That way, if you need business financial records to apply for a loan or entice an investor, the relevant details are easy to find.
You’ll also save money on taxes because you won’t accidentally overlook a business expense that was buried in your personal records.
Separating your personal and business finances is just the first step. The next step is organization.
You should know where your invoices, credit card statements, and other financial documents are. The records tracking your inventory supply and payroll projections should be organized and complete. If needed, you can leverage these records to take out loans against your inventory or to fund your payroll.
4. Wise Use of Credit
Whether you’re borrowing against your inventory, taking out a line of credit, or accepting capital from a silent partner, use credit wisely.
Are the funds helping your business grow? Do the interest rate and terms promote repayment, or will the loan lock your business into debt?
Do a risk-reward analysis on every type of debt your business incurs. Ideally, any line of credit should be part of a strategic initiative to grow your business.
5. Tracking Direction
Well-organized financial documents help you compare where your business is going to where it’s been.
Track your growth, losses, successes, and failures to understand how your business is doing. When you project future revenue, expenses, and cash flow, use financial records to assess what’s working, what you need to change, and where you need to focus for future projections.
6. Tight Accounts Receivables Management
Don’t overlook accounts receivables management when focusing on your core business.
If you get comfortable with late clients payments, your net 30 accounts receivables can easily grow to net 60 or 90. That hinders your cash flow and makes it hard to maintain your budget. Don’t loosen your AR management.
Stay on top of accounts receivables and keep the turnaround time as consistent as possible. It will make financial planning easier across the board.
7. Tempered Staffing Growth
Bringing on new talent is exciting, but you have to account for salary costs as well as indirect costs like office supplies, extra utilities, payroll taxes, benefit expectations, and more. If you cannot sustain these costs, you may have to let someone go — one of the worst aspects of being a boss.
Temper your staff growth. Don’t hire people until you have a sustainable, long-term position for them. If you need help, outsource some processes, reach out to the gig economy, or hire a virtual assistant.
8. Rainy Day Funds
Even with the most carefully crafted plan, unexpected expenses arise. To prevent a halt in your momentum, have a business emergency fund in place.
This could be cash savings, access to a line of credit, or even well-organized documents that boost your ability to access emergency financing.
This is one of those business management tips that no one talks about until the inevitable happens.
9. Risk Management
Use your imagination as well as stories from others in your industry to assess your level of risk in various situations.
What will you do if your computers crash? What if you have a data breach, your supply chain fails, a manager quits, or if there’s a robbery?
Identifying, analyzing, and planning for relevant risks isn’t just quality financial management; it’s quality business management.
The Importance of Financial Management
Regardless of what your business does, it cannot succeed without a sound approach to financial management. Track every dime that comes in the door, have a purpose for it and know where it’s going.
Simply knowing the basics of business financial management can go a long way to helping your endeavor thrive.
Related: 50 Small-Scale Business Ideas You Can Start Today