How do you look after the finances in your small business? It’s important you have a strategy in place for dealing with all of the accounting in your life.
Money management for small businesses means keeping track of all sales, inventory purchases, bills, staff payments and anything else that is paid out of a business account. Keeping a firm grasp of your business finances allows you to set smart goals for growth or patch over areas where you might be losing money. If you don’t have a sound money management strategy in place, you may find it harder to grow your business, or indeed identify where the holes are.
Why is money management so important for small businesses?
At any stage in the life cycle of a small business, it’s vital you know what your cash flow is and to regularly forecast for potential changes. Xero suggests that poor financial management is the downfall of many small businesses in Australia – if you want to run a financially successful small business, money management must be a priority.
As soon as you lose track of your finances, you won’t be able to track your business health. A healthy small business makes money, doesn’t overspend on unnecessary items or extra staff members and pays all bills and expenses on time. Right now, is your small business ticking all of those boxes?
Strategies for better small business money management
In order to correct your money management principles, you need to put a strategy (or multiple) in place. Start small and make it a routine before adding extra facets to your accounting. Here are just a few that could right your ship:
Strategise your spending
You can achieve this by creating a budget and finding out how much you earn per month. The idea is that you spend 100 per cent of your revenue over the course of the year on different aspects of your business. For example, you spend 50 per cent on expenses like inventory and payroll, 20 per cent on new equipment or staff, and the remaining 30 per cent on developing for the future (implementing new marketing campaigns/products, or developing an app, for example).
Any variation on that would work – the first step is to find out where you’re currently spending your revenue. If you only spend 30 per cent on expenses, you have more room to invest in the future or grow your business right now. Consult a financial professional for more help strategising where to spend your revenue.
Pay your bills on time
Bills come from lots of sources – employees, the bank, tax bills, suppliers, the list goes on. When you pay these bills late, sometimes they accrue interest. That makes your expenses more expensive, and it’s avoidable. You’re basically throwing money away if you don’t keep on top of your due dates. Xero research found that 20 per cent of ASX 200 companies pay their taxable invoices late – that’s a big money drain and could cost your business the ability to grow.
Get into the habit of organising your bills and paying them before they’re due to avoid overspending on interest.
Pay yourself a salary
As soon as you earn money from your business, you see it as personal income and a business expense. When you don’t earn a salary but take money from the business profits when you need it, you’re mixing your business and personal finances, making it more difficult to manage all of your expenses. Your salary doesn’t have to be huge, and it doesn’t have to be the minimum amount possible, but make sure you find a way to separate business and personal money management.
Money management in your small business is vital to its success. Make it a priority and you could see a significant difference in profits and revenue. For more information about managing your business finances, get in touch with BOQ today.