As is often the case, a small business stands a good chance of success because of the skills that the owner brings into making the product or providing the service around which the business is built. Where the expertise of making the product or providing the service is not matched with commensurate experience in managing the finances of the business, as is often the case, the financial side of the business feel like a chore for the owner. What follows is that the owner and the business would slip into poor financial habits that inevitably cause harm to the business.
This needs not be so. The Small Business Owner can, and should, educate himself or herself to understand the skills essential to run the business, like handling simple accounting tasks and leveraging them for sound money management.
Managing the finances of a small business is a critical component of its operations. Success in this effort enables the Small Business Owner to control day to day payments and keep the business in a position to respond to financial problems that may arise in the course of its trading activities.
Here is a range of practical steps that a Small Business Owner can take to improve the monitoring, control and management of the finances of a small business:
- Follow A Business Plan: It is important to have a clear and detailed business plan that outlines the set goals, and the time allotted to achieve them. The resultant financial framework ensures that the business knows its obligations in terms of expenses, salaries, taxes and sundry payments during the period covered by the budget.
- Monitor Your Books: The Small Business Owner must have a set time, a day in the week or month, to personally monitor and review the books of accounts of the business. A consistent performance of this exercise, with or without a bookkeeper, will make the Small Business Owner to be familiar with the finances of the business. It will also provide signs of red flags for the business.
This regular monitoring of the accounting books also provides an opportunity for the Small Business Owner to review such items as bank reconciliations, outstanding invoices, payments falling due, wasteful expenditures or outright pilferage of company monies.
- Stay On Top Of Payments: The Small Business Owner needs to be abreast of the circulation of money within the business. Being responsible for the budget of the business, he or she must know where money is moving to.
Whether it is a settled bill or the monthly payroll or a regular office expense or vehicles maintenance costs, the Small Business Owner must keep track of the coming and going of money. This will help to assess where money is short or surplus, and enable the Small Business Owner to avoid over-spending and running out of money.
- Have An Invoicing Strategy: The Small Business Owner knows that cash flow is the key to managing the finances of a small business. Hence he or she strives to ensure that the business is operating at a healthy level of cash on a daily basis.
Because some customers are consistently late in settling their invoices, and too much cash can be tied up in un-paid invoices, a Small Business Owner must get creative in how it issues invoices to different customers. Beyond delivering invoices as soon as customers receive product or service, payment terms can be varied for customers.
For example, a customer who pays immediately on delivery can be offered a generous discount while and late-paying customer can also be motivated with a less generous discount for paying within a certain time frame.
- Focus On Return On Investment: It is good advice for the Small Business Owner to focus on the expenditures of the business. It is better advice to focus on returns on investments, because this gives a clear picture of the investments that make money sense and those that don’t.
By continually measuring returns on investments, the Small Business Owner knows where the business is spending money and which investments are paying off. This knowledge helps to shape decisions on spending more on initiatives that are working and cutting back on those that are losing money and not worth continuing.
- Invest In Technology: Software technology and digital platforms now offer options for Small Business Owners to manage the finances of their businesses.
From preparing budgets and tracking expenses, through paying bills and issuing invoices, to preparing employee and company taxes, there is a growing variety of accounting systems for performing these tasks. There are also real-time, integrated systems that combine the functions.
The deployment of these and similar technologies will greatly enhance the efficiency and productivity of a Small Business Owner who desires to grasp the finances of the business and, by extension, be more competitive in the chosen line of business.
- Work With Your Team: The Small Business Owner needs a team of skilled, experienced and trusted professionals to assist with managing the finances of the business. They are necessary to help determine the condition and direction of the business, to provide guidance and advice on the way forward, and free the owner to focus on other areas of the business.
Where the finance team cannot be assembled in-house on full-time employment, some or all of them can be engaged on a short-term or part-time basis, or similar but affordable outsourcing plans.
Managing finances can be a major challenge for a Small Business Owner. Yet, a proper and continuous tracking of the financial information of the business is vital. It is risky and costly for the Small Business Owner to get to the end of the trading year and have nothing to show beyond a bunch of receipts and bank statements. With a little investment of time and effort, a Small Business Owner can also master the financial side of the business.