Running a business comes with its fair share of hassles and perks. While a business owner might have several added benefits from banks and other organizations that non-business owners don’t have, the hassles on business owners’ plates are no less. There is a lot to do to run smoothly, from managing the business operations and client relations to keeping the finances in check.
Finance management is one of the most crucial tasks for any business. Many SME owners mistake handling the finances either by themselves or ultimately not looking into the financial planning and depending entirely on hired accountants. In either scenario, the business can face quite a brunt if the finances go wrong.
However, proper financial management will not only keep your business afloat even when the revenue goes low, or the global economy gets a hit like the covid-19 pandemic. Here are top finance management tips to keep your business finances in order.
Implement Appropriate Bookkeeping Practices
The most important rule for the finance management of any company is implementing appropriate bookkeeping practices. Whether you have hired an accountant or a simple bookkeeper or your business is small, and you tend to handle the finances yourself, you must follow standard bookkeeping practices to keep a regular record of your business. Record all transactions in time and keep the payment receipts, invoices, and bills in a document. Don’t leave the payroll management or transaction tracking for the last/closing week, as that can land you in hot waters. While doing all that, ensure you have proper accounting software to help you make projections and record data efficiently. You can also conveniently integrate efficient bookkeeping software with your CRM & ERP, syncing your orders, transactions, and payments.
Always Keep Your Business & Personal Accounts Separate
Another rule of thumb is always to keep your business and personal accounts separate. Separation of business and personal accounts is necessary because it gives a professional outlook to your company and makes record keeping easy. If your business model is B2B, you might frequently have recurring clients making payments. Asking them to make payments to your account can make them quite skeptical and harm your business revenues. Mixed business and personal finances can also lead to over-taxation or tax evasion. Both can be pretty damaging to your financial standing as well as your reputation.
Prioritize Your Repayments & Debts to Avoid Soaring Interest Rates
Most businesses operate on credits and pay a minimum or no interest if they make payments on time. Alternatively, business owners also obtain investment capital from investors, sometimes on the terms of paying back with interest. If the business revenue plunges, the rising interest rates can be a big problem for business owners and even lead to bankruptcy. It is essential to prioritize your debts to avoid this situation. You must know which debts to pay first. Start with the taxes and payroll and then make full or partial repayment of the most significant amount of money owed to one creditor. You should do this because the sooner you pay, the more substantial amount, the lesser the interest rates, and the better for your business eventually.
Formulate Your Budget Conservatively & Stick to It
When formulating your budget, do so with a conservative approach. Don’t let your incoming revenue blind you to increasing your budget. A miserly approach is better than ending up broke or bankrupt in a few months as a business owner. Allocate your budget to the various departments of your business wisely, and keep the revenue contribution factor of each department in your mind. Of course, this doesn’t mean you discriminate among the employees of your departments. However, it would be best to plan your expansions, advertisement spending, and employee benefits according to your budget. A pro tip – don’t forget to add petty cash allowance to your budget.
Strategize Business Expansion on Conservative Financial Projections
Expanding your line of products or services is an excellent approach and doing so in the early phases of business also helps you penetrate a broader market. However, it would help if you did so with conservative financial projections. Often, enthusiastic entrepreneurs study market trends and dive straight into expansion plans when they see an opportunity, putting their all into expanding towards the particular option; this can be a dangerous move. While taking calculated risks is a good approach, making sure your calculations are correct and considering both scenarios is essential.
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