Financial management is one of the key aspects of running a small business, from creating budgets and forecasting revenue and expenses, to controlling cash flow effectively.
At the core of managing your business’s finances lies an understanding of its fundamentals. A failure to do this could mean lost tax deductions, difficulty getting loans and making decisions which cause further complications down the road.
Bookkeeping is an essential aspect of financial management for small businesses. Doing so ensures your operation complies with government regulations, while providing tax authorities with essential data.
Bookkeeping can be done manually by entering transactions in physical books or digitally using bookkeeping software, but small businesses must regularly review their bookkeeping records to stay on top of things.
An essential principle in bookkeeping is accuracy. Make sure each and every transaction is accurately recorded.
Maintaining organized receipts, invoices, and expenses is also key. Doing so makes reconciliation simpler while making tax deduction claims simpler.
Prepare a budget whether starting up a business from scratch or already established to ensure financial management success. Doing so gives greater clarity into your finances, giving more assurance when making informed decisions.
First, create a list of all of your business expenses. This should include fixed expenses (those which do not change from month to month), such as rent, salaries, insurance premiums and accounting services.
Next, it is important to track variable expenses (those which vary month-by-month), such as food, clothing and entertainment expenses.
Keep an eye out for one-time or unexpected expenses such as purchasing new equipment, training programs or marketing initiatives – these could include things such as buying new office chairs.
One of the primary aspects of financial management for small businesses is inventory control. This involves keeping track of what stocks you currently possess, when to order additional quantities, and their respective prices.
Establishing an efficient inventory system enables you to more effectively manage cash flow and prevent overstocking or shortages. Furthermore, having such a system in place can save both time and money in the form of time saved and money saved on shipping costs.
Controlling suppliers is key to effective inventory management. Selecting reliable vendors who ship fast can help reduce purchases and tie up less cash in inventory.
An effective inventory management system can automate stock checkin and receipt, including proper shelving and display so you always have the desired products available – this helps avoid restocking errors, false backorders and unsold goods.
Cash Flow Management
Cash flow management is one of the cornerstones of financial management for small businesses, as it allows you to meet payroll, make vendor and supplier payments and cover everyday costs like rent.
Track and forecast cash inflow and outflow to ensure effective management of your finances, giving you time to adapt. Doing this allows you to see when money will arrive or leave and enable adjustments to be made accordingly.
Set an ambitious profit goal that will enable you to plan for expenses and increase revenue. Doing this will give your business the best chance at succeeding.
Financial management is one of the cornerstones of running any successful business. Without it, bad financial habits could arise and hinder its expansion.
Establishing a financial plan involves collecting and organizing your financial data, including an income statement and balance sheet. Additionally, create a sales forecast and monitor cash flow.
Financial planning assistance can be found both online and through mentors. SCORE, one of the largest volunteer networks of business mentors, offers templates as well as personalized assistance.
Consult with a small business financial advisor who specializes in accounting principles and tax codes pertaining to businesses. He/she can also offer guidance when exploring various funding opportunities such as loans or grants.