The challenges money management and all the other issues we juggle in owning a small business can feel insurmountable at times, especially when it comes to finances. Money management is the biggest factor in terms of personal success. As an entrepreneur or startup founder, you alone are the chief financial officer and accountant for your business. The only person who sets the budget, enforces boundaries and manages income and expenses is you.
That’s a lot of pressure, but it can also be immensely gratifying when you manage to maximize your revenue and gain more financial freedom than ever.
Money Management Tips to Keep Your Small Business Afloat
To give you the greatest chance at reaching your goals and making your business prosper, here are some of the best money management tips you should know. They’ll not only help you build a solid foundation, but they can also work in a pinch when you find yourself starting to struggle to make ends meet.
Understanding Small Business Finances
The challenge of running a small business is the lack of capital and/or revenue. You simply don’t have the quantity of resources to work with as a bigger or more established company. When times get tough, you are likely to run out of options faster and quickly find your savings or even personal finances dwindling. Even with fantastic planning, certain circumstances happen that are simply outside of your control.
A pandemic, for example, can’t be controlled, and the impact of COVID-19 left many small business owners at a total loss. You’ll likely have more expenses and obligations than profit in the beginning. If you are generating sales, that’s great, but you’ll need to pay close attention to how you distribute your revenue if you want to stay successful and scale your operations.
Large vs. Small Business Financing Options
The size of a business varies by industry, but generally speaking, a large business is a corporation or enterprise that has stockholders involved. They are operating at a much greater scale than an individually-owned or small company, and they not only have more resources in reserve but far greater options when they’re in a bind. At the higher levels of operation, companies can take out lines of credit and receive loans that may not be accessible to a startup.
While there are SBA loans and credit cards available for smaller operations, the principals tend to be smaller and yield higher interest rates, which can make repayment difficult when a company is already struggling. Greater assets mean greater options, but that doesn’t mean small business owners are out of luck. By building the right skills and knowing how to predict and prepare for setbacks, you can weather the storm and guide your business to greener pastures.
Separate Business and Personal Funds
The biggest mistake most entrepreneurs make is failing to separate their work and personal expenses. Although your company is your primary source of income, you need to deduct your take-home pay and leave the savings and additional revenues separate. If you find that you’re running too low on expenses when you’re running your company, you can look into borrowing a personal loan from a private lender.
Personal loans are meant to meet your current needs, so there are plenty of options including flexible repayment schedules, different payment amounts and different interest rates. Explore your options to discover the right refinancing option for you. This can come in helpful down the line if you have multiple loans and want to save money on repayments without tapping into your business’s reserves.
Stay on Top of Deadlines
Invoices, bills and other deadlines should always be paid in-full and on time. Keep a schedule active and set notifications. If you can automate payments, do so. Knowing that a certain amount of money is set to come out of your bank account each month can help keep you focused and accountable, as there isn’t room to put things off or backtrack when you’ve agreed to pay things by a certain time.
Time Your Purchases
How often do you need to replenish your inventory? Does your manufacturer or supply chain currently feel out of sync with your overall budget? Pay close attention to when deductions are made, and time them to maximize your income. Revenue will always take a hit to keep an operation running. The ideal timing, however, can turn a model that feels choppy and disconnected into one that smoothly runs without a hitch.
Cut Costs and Increase Revenue
Could you switch to a different supplier and save more money? What about cutting back on packaging or even software expenses? There are many ways you can subtly and substantially lower costs to bolster profit. If you’ve been paying others to do work that you could handle yourself, do so. It may mean longer hours, but the eventual pay-off is worth the price.
On a more practical note, take a look at things like utilities, water consumption and office supplies. Be mindful of how you operate, how much you’re using and how you could adjust your usage to save more. Increasing revenue can happen in a few ways. Sales and promotions are always an option, and there’s also the possibility of raising your prices to reap greater rewards from each sale. Consider your current client base and growth rate to determine which option would be best for you right now.
Although you will face hardships running your own company, being a small business owner helps you grow in ways few other jobs can. Mastering money management for your professional life will undoubtedly have major advantages in your personal one, too. Take advantage of the financing options available to you. Loans can be especially valuable if you know how to optimize your principal and turn it into an even greater profit.
Take a look at this post to see how a Financial Planner can help with money management.