Proper financial management is at the core of the survival and success of any business. If you lose focus on finances, your business will tumble. But it’s also time-consuming and to some extent, esoteric.
You may be wondering, where do I start? What are the most important things when it comes to managing your finances in a small or medium business? These tips will help you manage your finances successfully and sail through any storm.
Start managing your finances by separating the personal from the business.
For many entrepreneurs, it is tempting not to bother to separate personal and business finances when starting. But this is vital in managing not just your business finances but also your personal finances.
If you hadn’t done it earlier, you’d better do it now
For starters, dealing with jumbled up records can be quite confusing for any bookkeeper who has to organize your books later. It will take them more time to untangle the mess. Thus, it will cost you more.
Also, when you keep the personal and business finances separate, managing your finances will be much easier especially when handling issues like taxation.
Make it professional
Open a separate bank account for the business. It’s the first, and easiest, way to separate your personal and business finances. Also, hire a professional bookkeeper as early as possible to help review your books. Even if this happens periodically.
Get a person who’s qualified, and licensed (don’t just go by what they say). He or she should also have the right personality and experience.
We spoke with Tania Usowicz of Building Blocks for Business and here are some of the personality traits she reckons you could look for:
- Truth/Honesty – get someone who gives straight answers and doesn’t beat about the bush.
- Criticizes – You need someone unafraid to express disagreement.
- Guts to take on challenges. Even if they seem insurmountable.
- Thoughtful – someone who considers stuff and doesn’t ‘lurch’ into things.
- Practical – someone who’ll complement, rather than duplicate your skills
- Tenacity – a bookkeeper who’ll not stop until you get excellent results.
Remember, no matter how good a bookkeeper you’ve found, always remain involved in managing your finances. Don’t abdicate the role.
Create a realistic and practical budget
Budgeting helps you create a living plan that lays out your financial priorities. A practical budget guides your plans. It doesn’t lock your decisions ahead of time.
With a good budget, you can create the future of the business. You’ll also know whether some of your plans are perhaps too ambitious.
Manage cash flow, AR and AP effectively
Cash flow refers to the inflow and outflow of cash resulting from business activities in a specified period. Inflows come from revenues, and outflows result from expenses.
Work with your bookkeeper to ensure that the business has enough cash to cover expenses at any moment. Your bookkeeper should help to keep an eye on both Accounts Receivables and Accounts Payables. They will help to ensure that you are managing your finances prudently by confirming that money that is due, comes in and that you pay your debts on time.
Rely on technology
Managing finances entails lots of documentation and verification. Keeping track of all these can be overwhelming.
Don’t be stuck in the 19th century by doing it manually. Make technology your friend.
There are many digital applications to help you take the tediousness out of bookkeeping. Ask your bookkeeper to recommend software that suits your industry. You could save a great deal of time, and enhance your accuracy.
Lastly, be slow to show off or celebrate
By taking the above measures, you’ll get better at managing your finances. As the business expands, be slow to show off or celebrate. Keep recurrent costs lean, and spend on fixed costs only when unavoidable.
Take care of your team, and work well with your bookkeeper. As Tania puts it, “A good bookkeeper is indispensable to business owners who want to spend time growing their business, instead of maintaining it.”