Extramile Finance

Small business owners need to remember that good financial management is very important to their businesses’ survival if they want to keep them going. To get the results you want, you’ll need to make and stick to a spending plan and keep careful track of your income and spending.

When you run a business, it’s not always easy to keep track of everything that’s going on. However, if you want your business to be successful, you need to stay on top of your finances. There are a few essential things you need to do if you want to be good at managing your money.

Here are seven ways to better manage your money and become your most financially successful self.

Financial Tips for Small Businesses

1. Make A Budget.

If you don’t plan, you’re setting yourself up to fail. This is especially true when it comes to your financial strategy. Every business needs a budget because it helps them make business decisions and even plan how to grow. If it is absolutely necessary, a budget can be set in stone, but if it is at all possible, it can be flexible.

At the very least, a budget should include how much money you expect to get in income and how much money you expect to spend on expenses. Once you have those numbers, you can move on to estimate them. Look at any differences between what you thought would happen and what actually happened. Make changes if needed.

If you’re unemployed and want to start a business, you can apply for unemployed loans with no guarantor, which are easier to get and don’t require much paperwork.

2. Automate Your Bill Payments.

Paying bills by hand wastes time that could be used for other things, like getting new customers or making new products. There is also a very real chance that deadlines won’t be met, which could lead to fines for being late. Switch to online banking and set up your payments to be processed automatically to speed up your process. You’ll earn more and have fewer legal issues.

As your firm expands, this will help you establish an automated accounts payable system. Accounts payable automation gives you better accuracy with less processing time, more accurate data collection, faster invoice matching and coding, fewer chances for fraud, and faster approvals.

3. Save For Retirement

However, most people who run small businesses want to put all their money back into the business. In many countries, it is a legal requirement to put money into retirement funds for both yourself and your employees. As the number of people who work for you grows, it is imperative to ensure that the proper steps are taken to save for retirement.

Here are the statistics on the number of small businesses that are there in the UK:

According to the most recent numbers released by the government in October 2022, there are little more than 5.5 million small enterprises operating in the UK. According to the same survey, small companies make up 99.2 per cent of the overall population of firms in the United Kingdom.

4. Analyse Cash Flow

Insufficient funds are a significant cause of company failure. Both incoming and outgoing cash must be tracked. The easiest method to accomplish this is to examine your cash flow statement regularly (at a minimum, once per month).

Write a cash flow statement using your balance sheet and income statement. You may make this statement with accounting software or by hand utilising the two statements. Start by entering your business’s cash balance at the beginning of the term. Include this in your income and expense accounts. The next step is to take into account cash flows from operations, investments, and finance. Consider incoming money positive and outgoing money negative. Finalise the balance by adding all the numbers.

If the closing balance is higher, you may consider your cash flow to be healthy. A cash flow deficit occurs when the end-of-period balance is smaller than the beginning.

Strong businesses usually have positive cash flow. A firm might have negative cash flow. This might happen if it’s still in its early phases and has already spent a lot on property and equipment or if its growth depends on venture funding or another source. If you’re short on cash, you may need to apply for door to door loans, reduce the number of employees you recruit, the amount of stock you keep, or your per-unit price.

5. Protect Personal Assets.

Does your business follow the model of a single owner? There is a chance that a lawsuit could put your assets at risk. Make sure you have a good understanding of the different types of business structures available in your industry. Make it a point to set up your business in a way that will protect you from legal liability and tax issues.

6. Keep Business and Personal Finances Separate

There’s a good reason why, as a general rule, you shouldn’t mix your personal money with your business money. Having a separate business account makes it easier to track spending and deductions. Also, if you keep your personal and professional finances separate, you might be able to avoid personal responsibility.

This table displays the funding that was provided to small businesses in the UK.

Source: gov.uk

When your business is just starting out and doesn’t have a good credit score yet, you may have to sign personal guarantees for leases, loans, and credit lines. But your main goal should be to transfer these responsibilities to your company as soon as it is practical to do so. You might be held personally accountable for the company’s debts if it goes bankrupt.

7. Debt Reduction

When a business is growing or expanding, or when cash flow is low, it makes sense for the business to borrow money. However, carrying too much debt can become a heavy burden. Here are a few ways to keep a company from going out of business because it can’t meet its financial obligations:

Cut expenses: Do you have space or things that you’re not using? You should think about selling it. Is payroll to blame? Cut down as much as you can on overtime and extra staff.

Communicate with suppliers: Try to get the price lowered or the payments put off. Because they don’t want to lose your business, many people want to work with you.

Be honest with your creditors: Tell them what’s going on and ask if there’s anything they can do to help.  You can ask them to lower your interest rates, increase your credit line, or change the way you pay. You could also hire a company to help you get out of debt.

Consolidate loans: If you pay all of your bills at once, you may be able to reduce your monthly payments and keep your credit score from going down. Think about getting a debt consolidation loan for your business. The company’s assets can secure this loan, or it can be unsecured. Since this loan only has one creditor, you will only have to deal with that one. Another possible benefit of this is a lower interest rate.

Conclusion

No matter how big or small an organisation is, it must have a solid plan for how to manage its money. Without it, even businesses that could work and might be able to make money would fail.

Most businesses fail not because they lack clients or have poor products or services. They collapse due to insufficient financial flow. Therefore, it’s crucial to make financial decisions early on. There is no time to settle in or get used to it.

Even though some owners of small businesses may have run a business before or know a lot about finances, the majority of small business owners don’t have much experience. When this happens, it’s essential to have access to available resources. You can rely on guidance as you make the critical early decisions and take on the financial responsibilities that lie ahead of you.