Recently, we’ve mentioned making smart financial decisions in the New Year, to lead your business to success. And when it comes to the success of your business, it’s about more than the ability to make money. Generating revenue is a necessary step, but so is effectively managing the money coming into your business. That’s why a thriving business is one that not only offers products and services that make the business money but is also able to save money. Your business may have a loyal client base and a fantastic product or service that provides a crucial solution for its customers, but are you making the most of the money coming into your business? In this post, we’ll equip you with some money management tips to keep your business operating at peak efficiency.
Eight Business Money Management Tips
1. Build a Business Budget
This one’s probably a no-brainer, but creating a budget for your business (of any size) is just as important as creating a personal budget. Effectively planning how your business will spend the money it makes is one of the first steps you should take in starting or growing a business.
An effective budget is one that forecasts future business expenses and provides a plan for how your income will cover these expenses. For brand new organizations, there will necessarily be some guesswork involved, and that’s okay.
As your business grows, you’ll be able to review your performance and adjust as necessary. Rather than something that needs to be perfect right away, a budget works best when frequently examined and replanned.
2. Minimize Expenses and Maximize Revenue
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Better financial health can be boiled down to its two most basic principles: cutting costs and increasing revenue. While these concepts are both intuitive, making it happen isn’t always easy.
In order to cut costs and save money, it’s necessary to first perform an analysis of your expenses. Without a thorough understanding of where your money is going, it’s impossible to pinpoint the best areas to scale back and reduce spending. You should also make sure your accounts payable are documented clearly defined so you don’t miss any deadlines.
Increasing revenue is just as valuable as cutting costs and can be achieved through a number of techniques. One of these is to offer discounts to current products. This can attract new customers and drive revenue, hopefully leading to more repeat clients. Another tactic worth considering is adding new products or services to sell.
In addition to the above methods for increasing revenue, it might be time to develop your marketing strategies. If you aren’t already, taking advantage of email marketing and social media campaigns can potentially give your business a serious revenue boost.
3. Negotiate With Vendors
This is a great tip for reducing business expenses. Before engaging in business with a new vendor, closely examine any contracts before signing them. Pay special attention to late payment fees and grace periods. Emergencies happen, and if you end up in a pinch and are unable to pay on time, the fewer the penalties the better.
Sometimes it takes some effort to come across a good deal. Before signing a new contract with a vendor, don’t be afraid to do some negotiating. There’s a chance you’ll be able to work something out and get a better deal than what was on offer.
4. Separate Business and Personal Finances
While both personal and professional finances benefit from carefully maintained budgets, it’s best to manage them separately. This is essential in being able to successfully track revenue streams. It’s also helpful for gaining valuable insights into the performance of your company.
A business owner whose personal and business bank accounts are linked will likely have a less complete understanding of their business’s finances. It can also make tax time especially difficult. Keep your personal and business worlds separate to get the most out of both.
To avoid other financial problems, read this post on Money Mistakes Business Leaders Make.
5. Managing Accounts Receivable
If your business offers any type of credit to its clients, staying on top of the money that’s owed to the business is vital. Late payments can have a significant impact on cash flow and your business’s ability to meet budgets.
The first step in effectively managing your accounts receivable is to create detailed summaries of these accounts. This will help you stay abreast of all the money currently owed to your company and when payment is due.
The second step is to pursue payment. Staying informed of the amount of money you’re due is great for bookkeeping purposes, but it won’t help your company collect payment any more quickly. You can pursue payment by sending late notices to customers with overdue payments.
Of course, pursuing payment is only viable when you’ve got accurate accounts receivable summaries. Another way to collect payment earlier is to offer early payment discounts — this is especially useful if you’re low on cash flow and need cash inflow quickly.
6. Establish a Line of Credit
It’s natural for the cash flow of a business to fluctuate frequently, especially for growing businesses. The best contingency plan for dealing with emergency situations where cash flow is low is having an emergency savings fund, but it’s also wise to consider an extra safety net.
It’s common practice to ask for a loan in difficult financial times, but consider establishing a business line of credit instead. This way, you’ll be able to only use what you need and pay it off accordingly. It’s best to set up a line of credit while your business finances are healthy!
For more about business loans, if you chose that route rather than a line of credit, read these helpful posts:
7. The Business Credit Card
Credit cards can get your business out of sticky situations when there’s a gap in cash flow. But using them properly is an important part of keeping your business healthy.
The guidelines for the responsible use of personal credit cards also apply to business. You should limit the use of credit cards to expenses that you can easily pay off fully by the end of the pay period.
Credit card debt is a slippery slope, and paying finance charges means unnecessary loss of money for your business. It also makes it more difficult to stick to budgets and accurately forecast future finances.
8. Inventory Control
If your business offers and sells physical products, maintaining appropriate inventory levels is paramount. Striking the perfect balance between having enough available to fulfill customer demand while also limiting the number of idle assets you have on hand can be tricky.
You can achieve the correct inventory levels by closely tracking the amount of product you have available at any time and how quickly you sell it. Forecasting your inventory needs and responding appropriately is a skill that will improve your cash flow and increase your operating profit.
Take Control of Your Money
These business money tips for effective financial management will help you get your business on track to financial success. However, maintaining financial health is an ongoing process. It’s something that requires constant attention and adjustment.
Money management can be a full-time job. Business owners tend to be the type of person that likes to “do it all,” and money management can take up a lot of time and energy. Fortunately, whether it’s purchasing accounting software or seeking professional help, there are steps you can take to make the process more manageable.
For more helpful business financial information, read these recent posts:
And remember, at Saddock Advisory, we can help determine if your business is financially healthy. Get in touch with us here to find out more.