5 Money Management Tips for Small Business Owners

Running a small business is no easy feat. As rewarding as the experience of working for yourself can be, there is a lot of responsibility involved and plenty of risks. In fact, more than half of new businesses will fail in their first year. One of the main causes of failure, is the inability to properly manage finances. Accounting is a pivotal component of operating a business of any kind and should be done with careful attention to detail. As many entrepreneurs have never worked in accounting, many rudimentary mistakes are made, which can prove costly to come back from.

Though hiring an accountant is essentially the best way to safeguard your company finances, learning and developing efficient money management practices early on can save you from problems later. Below are a few financial management tips to consider for your small business:

  • Create a Budget and Stick to it

Though it may seem like a chore to keep track of all your company costs, a budget is a necessary piece of financial management. Other than tracking expenses, budgets can help business owners to make informed financial decisions. Giving them a clear picture of revenue and expenses, business owners have an easier time assessing where their funds are going, where they can cut back, and essentially where they can invest to grow the business.

  • Establish an Invoicing Payment System

Many companies use invoices to bill their customers, providing a product or service upfront with the promise to pay from the customer. While extending “credit” to customers is a great way to potentially increase your revenue, it’s only beneficial when the invoices are paid in a timely fashion. Establishing an invoicing system right away should help you to manage your finances a lot easier.

Some effective invoice payment tips would include creating invoices with clear and accurate information including company contact, due date, products and/or services, forms of payment accepted, address and where to send payments, and payment terms. Having a good backup plan is also advised for when invoices aren’t being paid promptly. This might include working with an invoice factoring company. Invoice factoring is a service that business owners can use to boost their cash flow. Companies like TBS Factoring buy outstanding invoices from companies for cash. You take the cash and they wait to get paid from the customers.

  • Always Pay Your Taxes

As you did when you were employed, as an entrepreneur you’ll be required to pay small business taxes. Depending on how much you earn, this tax could be required quarterly to avoid penalties and fees. While you may not be able to afford a tax accountant, it may be worth consulting them during your first year to familiarize yourself with how to handle issues going forward. They can provide industry insight to help you save money and remain in compliance with the IRS.

  • Save as Much as You Can

A savvy business owner will always look for opportunities to cut back and save. Although business expenses are necessary, there are affordable solutions that can save time and money. Whether it’s finding a new vendor for inventory or supply shipments, investing in new software to streamline processes, or outsourcing instead of hiring in-house staff, the less money your business operates on, the more revenue you can generate.

  • Separate Your Personal from Your Business

When starting a business, many entrepreneurs make the mistake of combining their personal and business finances. Depositing funds and spending from the same accounts can make it difficult to see your company finances. Consider creating separate checking and savings accounts for your business funds. This way, you’re fully aware of what your business expenditures are, where you’re overspending, and essentially how you can best save to advance the business. It will also make reporting taxes easier.

Every business will have highs and lows when it comes to finances, however, creating an effective strategy for managing company funds can minimize the risks and ultimately help you prepare. If your small business finances are all over the place, consider an audit to determine what you’re doing wrong. Then, use the above-mentioned steps to develop a plan of action for getting your finances back on track.

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