“Balancing your money is the key to having enough.” ― Elizabeth Warren Amelia Warren Tyagin
Money management is the process of handling your business’s finances through budgeting, setting goals, tracking expenses and income, and investing. With a sound money management plan, you can avoid periods of negative cash flow and ensure your business is on track to turn a profit. Failing to wisely manage money can lead to problems like making late payments, running out of money, and not collecting on your accounts receivable. To keep business operations running smoothly, you need enough money to cover expenses. Put these nine tips to use to learn how to manage money in a small business effectively.
- Stay on top of deadlines
If you don’t know when your bills are due, such as accounts payable, business loan payments, or credit card payments, you might not have enough cash on hand. Not to mention, failing to know when bills are due can set you back with late fees or added interest, lower your business credit, and sour lender and vendor relationships.
- Monitor spending
Do you know how much money you spend per day, week, or month? If you don’t monitor spending, you could be racking up bills that you don’t need. And, failing to monitor spending can lead to overspending and misuse of funds.
Track your expenses by managing your accounting books. You can use a simple software to record accounting transactions. When you have a log of your expenses, you can easily monitor spending.
- Don’t forget about accounts receivable
If you offer credit to customers, you’re well aware that you might not receive money for goods sold or services provided until the due date or beyond. After a week or month, it can be easy to forget about accounts receivable. But if you want to better manage money, you must remember the funds owed to your business and pursue payments.
- Separate business and personal funds
Do you have a separate bank account for business? Even if you aren’t required to separate business and personal funds, doing so is critical to money management. Plus, business bank statements are useful for tracking profitability, reconciling your books, and monitoring spending.
- Time your purchases
To avoid instances of low cash flow, time your purchases. Do not make unnecessary purchases until you have paid your bills. And, wait until you have enough cash on hand to cover new expenses.
- Create a budget
A budget also forecasts the amount of revenue your business will receive. If you find that your revenue is lower than budgeted, find ways to cut expenses and increase income.
- Manage inventory
Track how much inventory you have in your business to avoid crossing the fine line between having too much inventory and not having enough. Record inventory purchases and sales in your books and spend time monitoring how much you have on hand before ordering more.
- Cut costs and increase revenue
You can increase revenue by offering discounts, promoting products through email marketing or social media advertisements, adding new products to sell, and establishing refer-a-friend and loyalty programs for small businesses.
- Have a cash reserve
Putting money management tips into practice can significantly improve cash flow management. But sometimes, the unexpected happens, and you’re left needing to cover an emergency expense.
Keep a small business cash reserve to help you manage money when you’re in a pinch. You can start a cash reserve by opening a business savings account. Be sure to regularly deposit into your cash reserve.
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