Starting a small business comes with its own perks and benefits. You don’t have a boss who’s always nagging about your work, and you get to do what you love. But with that, comes the great responsibility of effectively managing your business, especially the finances.
As a small business owner, sorting my business finances was always an overwhelming task. Even though I enjoyed how much revenue my business made, I was never able to streamline it.
Consequently, I suffered losses and overspent on unnecessary tasks. Resultantly, even when my business thrived, my financials looked like a mess as I had no idea how to manage them wisely. Having said that, I gradually got full control over my expenses, and below, I’ll share a few tips on how I did that.
Create and Follow a Detailed Budget
Smart spending habits start with the creation of a comprehensive budget that reflects your business’s financial health. And without one, you can be at risk of spending more than your business’s revenue.
I believe the best approach to creating a detailed budget is to start by analyzing your business expenses and profits. As a small business owner, you should have the clarity of how much your business earns on average and how much is the overall cost to run it effectively.
Also, it’s a great idea to divide your business’s expenses into different categories when creating a budget. This way, a detailed budget will help you track business spending and offer opportunities to cut down costs, which I’ll discuss next.
Cut Down on Expenses
Ideally, a thorough budget should point out some leaking holes in your business. Essentially, leaking holes silently affect your profits, and the best way to deal with them is to smartly plug them.
For instance, I found that the internet and phone were a major business expense as I spend nearly 5% of my revenue on them every month. I had to rely on a lot of work tools and used my phone to communicate with my clients. As it wasn’t possible to altogether eliminate these expenses, I found a way to lower their cost with Spectrum Deals, which allowed me to get the same internet speeds, but at a lesser cost
By bundling my internet with a phone, I brought the overall cost of these utilities to nearly 2% of my revenue. A 3% drop may not seem significant, but you can explore more ways to lower your expenses to have a major positive impact on your overall profit margins.
Save to Build an Emergency Fund
An emergency fund is significantly important for a small business, but sadly, one of the most neglected factors as well.
It’s been a common practice for me to save money when my business is in profit. And guess what, it saves me from taking a loan from others and debt when my business suffers a loss or needs more investment.
Most businesses rarely work on creating an emergency fund, and I believe it’s a safety net that would help you avoid debt. If you have a solid emergency fund in place to cover your business expenses for a couple of months, then you can always rely on it without drowning yourself in debt.
To create an emergency fund, dedicate a small percentage of your business profits to it every month. Having said that, the key to successfully establishing this safety net is to never touch it until your business is in dire circumstances.
Separate Your Personal Expenses
I’ve seen people withdrawing their business funds for personal use. However, I highly discourage this practice as it clutters the business’s financials and makes bookkeeping a difficult and complex task.
When you mix business expenses with personal ones, it can become highly confusing to separate them. You may face difficulty in sorting your business and personal expenses, and not to forget its effect on record keeping.
Also, you cannot ignore the possibility of mistakenly spending essential funds for personal gains, which may derail your business.
Here, the right approach is to have separate business and personal accounts. This way, you’ll always know how much funds are available in respective accounts and spend them wisely.
Meet Your Deadlines
There is a variety of expenses business owners face every month. While some expenses may be non-recurring, some of them are fixed like paying suppliers, vendors, clients, loans (if any), or credit cards.
As a small business owner, you must meet the payment deadlines because it can significantly dent your business’s financials. Late payments can cause interest rates to spike, which eventually hurt your business’s profits.
And, not to forget that delayed payments to your suppliers, vendors, or other entities involved in your business can damage your relationship with them. So, never delay your payments and meet deadlines to ensure that your business financials and relations don’t suffer unnecessarily.
These tips will streamline your business financials, for sure.
But before I wind up, I suggest you use money-management apps like Mint, FreshBooks, or QuickBooks to manage your finances effectively. These financial apps and software offer well-rounded options to track your expenses, budgeting, resource allocation, payment reminders, and more.
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