3 Tips on Effectively Managing Your Business Finances
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When entrepreneurs are too focused on producing and marketing their products, or tasks most aligned with their skills, managing their small business finances takes a back-seat position.
In a Business News Daily blog, Matt D'Angelo writes that without the experience of overseeing business finances, it may be overwhelming and can lead to bad financial habits that could be detrimental to your operations.
It's crucial to be knowledgeable about finances to build and grow your business, especially if you don't have a chief financial officer.
"Managing your business finances is critical to keeping your business running smoothly and making informed decisions," writes Janet Berry-Johnson in a blog for Lending Tree.
Berry-Johnson adds that you may lose out on valuable tax deductions, make bad business decisions, and have difficulties securing loans by ignoring your small business finances.
Here are 3 essential tips on managing your finances as shared by small business experts and experienced entrepreneurs.
Manage Cash Flow
Every small business owner knows the critical role cash flow plays in operations. Additionally, it's a significant part of managing business financials.
According to a QuickBooks blog, cash flow can be compared to a car's operations.
"You fill up the tank with gas, and it empties as you drive. The goal, however, is to have enough gas in your tank so that you never run on empty."
Managing cash flow efficiently to develop more money than is being spent can be tricky for a business owner.
In the QuickBooks blog, Kat Boogaard writes that all businesses - even the most profitable - encounter cash flow issues.
"It can be challenging to balance regular business expenses—salaries, rent, technology updates, and more—with things less under your control, like sporadic revenue and periods of negative cash flow from seasonal patterns or investments in growth," Boogaard adds.
Have A Strong Billing Strategy
Creating a solid billing strategy is crucial in effectively managing cash flow.
In a QuickBooks survey, more than half of small business owners said late customer payments are the source of their cash flow problems. Further, the QuickBooks research showed that more than a quarter of the businesses shared it takes more than a month to get paid.
In the Business News Daily blog, James Stefurak, managing editor of Invoice Factoring Guide, cautions that excessive cash tied up in unsettled invoices may cause cash flow issues.
Instead of constant invoicing and phone calls, the blog recommends using another way to get through to customers who are known to have a late payment habit.
For example, Stefurak says you could change the payment terms to '2/10 Net 30.'
By doing so, he explains, you're offering a 2% discount over the total bill if the invoice is paid within ten days. If they don't, then the full payment is due in 30 days.
If possible, have the "invoice conversation" in the beginning prior to any work being done to iron out the logistics of a preferred payment method — it'll help you get paid faster, advises a QuickBooks blog.
"If it's too late for that, don't beat yourself up," the blog says. "There's always next time."
Stay On Top of your Books
Even with a bookkeeper, keeping a close eye on your books remains critical. Set aside time in your schedule for a daily, weekly, or monthly review.
Setting up a routine will allow more familiarity with your business's financial aspects, including outstanding invoices and unnecessary expenditures.
"Accounting for revenue and expenses can help keep your business running smoothly," the SBA says in a blog on its website. "Make sure you maintain proper bookkeeping and have a basic knowledge of business finances."