To be successful in business, you need more than determination, perseverance, and hard work. You also need to come armed with knowledge of how to manage your finances.
Cash flow management is one of the most common challenges faced by modern entrepreneurs. Most small business owners are lean on capital. But the good news is that you don’t need to be a financial expert to learn the secrets of managing money. Here are some of our best tips for new entrepreneurs.
1. Establish Your Goals
The first step towards successful finance management is setting clear goals. It is crucial for the survival and growth of your business.
One obvious goal for every business is to generate higher revenues. But you should set more specific goals that define your priorities. For instance, some important goals are “decrease costs,” “improve margins,” “reduce debt,” and “budget cash flow.” While your primary goal is always to make more money, there's more to it than just increasing sales. You can also boost revenue by paying attention to your online loans. Check to see how much money you can save by lowering your production expenses and overhead, and creating a cash flow budget.
2. Be Diligent with Recordkeeping
After a tiring day, the last thing you want to do is update your financial records. But as tedious as it may seem, it’s actually one of the best practices in financial management.
Recordkeeping doesn’t have to be a long, complicated chore. The key is to stay organized. Start by recording all your information in one place. It’s up to you if you want to invest in a bookkeeping software or use free tools like Excel or Google Sheets. Next, organize your data by category. It’s easy to forget about numbers and dates. But if you make record-keeping a priority, you'll find that it will become much easier to monitor and take control of your business finances.
3. Stay Lean
Financial experts are now recommending the “lean budgeting” approach to help companies save money and establish a more sustainable financial framework.
Financial experts are now recommending the 'lean budgeting' approach.
So how does lean budgeting work? Lean budgeting means prioritizing value streams over projects. Value streams are actions or steps that companies take to provide a continuous flow of value to their customers. For instance, one value stream involves purchasing inventory essential for the current production. Other possible value streams include focusing on activities or projects that give you the highest returns, deciding fast and implementing projects faster, building partnerships, and cross-selling whenever possible.
4. Be mindful of your credit
Managing your business credit line should be one of your priorities. Many businesses fail because of delayed or insufficient financing. A good credit score can help you find money when you need it. Since suppliers look at a company’s credit rating when making decisions to extend their credit, a good score also helps your business get materials and equipment at an affordable term.
How do you build a positive credit history? Use your line of credit to make smart purchases, meet payroll needs, or stock up on supplies. Make sure to keep up with your payments to avoid penalties and charges.
5. Save Where You Can
In an uncertain economy, every penny counts. So learning new ways to increase your revenues and lower your expenses can make a great impact on your business.
Learning new ways to increase your revenues and lower your expenses can make a great impact on your business.
There are many ways to reduce your costs. Start by lowering your supply expenses. Look for vendors that could provide you the lowest prices. Optimize your resources and find ways to cut material costs. Find alternative ways to market your brand. Maximize your employees’ skills instead of hiring too many staff. Don’t take on unnecessary debt. And reduce production waste.
6. Separate Your Business and Personal Expenses
Your personal and business money should be kept separate at all times. This will eliminate situations of potential money crunch in business because of withdrawals for personal expenditures.
When you start a business, make sure you open a separate bank account for the company. And if your business is your main source of income, consider paying yourself a salary to cover your personal expenses.
7. Build an Emergency Fund
The best thing about being an entrepreneur is that your income potential is limitless. However, achieving your financial goals is not easy, especially in the first few months or years of running your business. There will be weeks when business is great but also weeks or months when business is slow. In times like this, you want to make sure you have a backup fund to keep up with your expenses.
Much like a personal emergency fund, your business emergency fund should be enough to cover three months to a year’s worth of expenses. Note that every company’s financial needs are different.
You want to make sure you have a backup fund to keep up with your expenses.
8. Get Educated
You need not be the very best when it comes to managing business finances—but you have to be informed and equipped with the skills needed to properly manage your money.
Where do you start? There are many free resources online, including articles, forums, webinars, podcasts, and websites that can teach you about financial matters, from budgeting to loan management, income taxes, and more.
You can also consider seeking help from a professional financial advisor. They have a wealth of training, qualifications, knowledge, and experience to ensure that your hard-earned money grows.
You Can Do It!
Being an entrepreneur is exciting and overwhelming at the same time. The best thing is that you have the opportunity to grow your money. The challenging part is you can lose your money if you don’t manage it properly.
Remember, equipping yourself with financial management skills is essential for business success. There are many ways to keep your finances on track. It all starts with establishing clear goals. Next, properly track and record your expenses. Keep them separated from your personal expenses, maintain a good credit score, save, put up an emergency fund, and stay informed. All these best practices should help you build your wealth and achieve business success.