Having the resources to shell out a large amount of money can help you start your own business, but this doesn’t always translate to long-term success. The financial health of your business can make or break its success—and not knowing how to manage this resource properly can become the reason why your business will encounter problems, including bankruptcy and closure.
As an entrepreneur, it’s vital that you know the importance of financial planning and implement strategies that allow you to effectively manage your business finances. Having this knowledge will guide you in running your business as it enables you to create and implement realistic strategies for achieving long-term financial growth.
Listed below are five ways for you to manage your business finances better:
1. Maintain a Borderline between Your Business and Personal Finances
You’ll have a lot of responsibilities on your plate when you decide to open your own business, but it’ll be harder for you to manage all of these if you choose to use just one bank account for your business and personal finances.
Using the same bank account for your business and personal finances should be avoided at all costs. It will only create confusion when checking your business expenses and maintaining your bookkeeping. You’ll also have a hard time determining if your business actually earns profit if both your business and personal financial transactions are kept in one bank account.
If you want to better manage your business finances, start by dividing your business and personal finances. Doing this will make it easy for you to account for all of your expenses and earnings at the end of the financial year. Having two different bank accounts will also eliminate the occurrence of a cash crunch because of personal expenditures.
2. Maximize Technology
Managing your business finances has become an easier task thanks to technology. Today, you can easily buy and use bookkeeping software to automate your business’ daily financial processes.
Investing in bookkeeping software is actually a cost-effective investment even for small or new business owners as they can help a business save time, continually monitor financial transactions and track inventory. This software can also provide accurate reports whenever needed, allowing you to come up with data-driven decisions.
With the number of bookkeeping software to choose from today, make sure to consider your needs, skills, and budget when choosing. The bookkeeping software you invest in should support the nature of your business and expansions in the future.
3. Design an Emergency Fund
The business landscape changes regularly, which means that your business’s financial success isn’t always guaranteed in the future. Regardless of how profitable your business is today, new companies can steal your customers and can even bankrupt your business.
Building up an emergency fund ahead of time is another way to manage your business finances better. Having an emergency fund allows you to navigate your business through any financial situation without needing to borrow money. An emergency fund will also come in handy if you’re still starting to budget in the business.
You can follow these tips to easily design an emergency fund for your business:
- Save your tax refund instead of spending it.
- Cut back on business trips and choose to conduct meetings and conferences using teleconferencing software.
- Save more when your business is earning more. Don’t be too complacent about saving up for your emergency fund, thinking that your business will earn the same profit in the coming months or years.
- Make emergency funds part of your business plan as this will encourage everyone in the business to accomplish the emergency funds objectives set.
4. Master the Art of Budgeting
Just like when you’re handling your personal expenses, budgeting can also do wonders when it comes to managing your business finances. Creating and sticking to a realistic budget allows you to allocate resources to different projects, identify problems before they occur, plan for the future, and monitor business performance.
Contrary to popular belief, budgeting for your business finances is actually easy and doesn’t require several tools or years of experience. You can start making a budget for your business through the following tips:
- Tally your income sources: Even if you’re still running a small or new business, it’s vital that you record the profit that you’re earning every month and where this money is coming from.
- Determine fixed costs: These are expenses that you’ll have to pay every month. This can include your office, payroll costs, and utilities, such as phone plans and internet.
- Include variable expenses: Unlike fixed costs, variable costs are monthly expenses that don’t have a fixed price tag. These expenses vary every month depending on your usage. Some of the most common variable expenses your business might have are travel costs, sales commissions, and shipping costs.
- Pull it all together: On your business budget, tally your total income and expenses, then compare your cash flow (income) with your cash flow out (expenses) to determine the overall profitability of your business.
5. Hire Professionals When You Need Them
As mentioned, you’ll have a lot of things on your plate once you decide to start and run your own business. You’ll likely have to divide your resources to ensure that you can cater to all the departments of your business without compromising your personal responsibilities.
One of the easiest and most effective ways of managing your business finances is to hire a professional to help you out. Hiring an accountant is a cost-effective investment because your business can use their years of experience in handling and updating books and submitting necessary documents during the tax season. They can also save you time, keep your costs downs, and offer a goldmine of small business advice.
Your business’ financial health is vital, which is why you should never attempt to manage it on your own, especially if you don’t have any experience for the task. Using DIY solutions to complex accounting problems will only end up costing you more money in the end.
Consistency Is Key
Better managing your business finances is a long-term responsibility that requires commitment and effort. Regardless of how effective these strategies are, keep in mind that you need to practice them in your business regularly to see results. The more consistent your business is in following these strategies, the easier it’ll be for you to achieve financial goals.