Taking a Strategic Approach to Accounting: 5 Tips to Manage Small Business Finances

Black Calculator Near Ballpoint Pen on White Printed Paper With Financial Figures

A small business doesn’t mean you won’t run into some financial issues. It can be easy to become overconfident with the “simplicity” of your business and find yourself financially unstable. Today, let’s talk about 5 tips you can apply to your business finances to better manage it.

Balance Your Personal and Business Finances

Running a small business should never become a net negative for its owner. While being dedicated to your business is okay, it’s not okay when it comes to the cost of your finances. Remember, you should still compensate yourself appropriately. Never undervalue your role in your business. After all, you are the owner.

You have to maintain a balance between your professional and personal financial stability. It’s a good idea to work this out with a small business accountant. Don’t just pour money into day-to-day operations as an extra way to gain capital. If your income from the business isn’t enough to upkeep your business, you need to fix the business, not patch it up with your personal income. Additionally, make sure you set aside your money for future opportunities for growth. By keeping yourself stable and setting aside money, you can easily upgrade your business when the time comes. Best of all, it would come at no major financial cost to yourself or the business. Always keep your eye on any potential markets.

A small business must have an owner that looks well-to-do but never at the expense of your employees. Showing potential recruits and customers that you are successful in both a personal and business perspective gives your business a real sense of legitimacy. Employees will see that they have room for success in the company, and customers can see a small business that cares about the workers.

Use Loans Sparingly

Loans can seem counterintuitive to some for savings, but they can be a great tool to use for shoring up sudden expenses. The instant monetary gain from loans can help reduce a lot of startup worries such as paying for your business’s lease or paying your employees promptly. However, do not rely on them for every little thing. Make sure that your business is running thanks to profit, not because of constant loans.

In addition to loans, make sure your business credit is in good status. Using loans sparingly is a good way to keep it as such. Business credit is what dictates a lot of transactions with other corporate entities, so it’s best to always pay off your working capital loans for your business transactions.

Get Creative with Invoices

Eventually, a small business will have a client that ends up late on their payments consistently. This sort of thing is common with clients who may feel too comfortable with your business or plan to not do business with you ever again. Either one is a huge problem with your finances. When you’re having a hard time collecting payments, it’s a good idea to rethink your approach.

When cash gets stuck in “I’ll pay later” limbo, it can lead to a disruption in your cash flow. A lot of businesses fail due to this lack of revenue. Instead of badgering them, try a different approach so you can get a return on your funds. For example, offering a discount if they pay within a certain number of days is common. As a further incentive, have them incur small penalty fees if they go over the payment deadline.

Lastly, just avoid problematic clients in the future. While it’s important to be understanding of a client’s situation, it’s still a matter of keeping your finances above water. If they are consistently late on paying invoices, this affects the bottom line.

Keep Your Books in Order

For everyday operations, always set aside time at the end of the day reviewing and monitoring all your books. For businesses that make use of a corporate card, this goes double as the expenses are done in your company’s name. Even if you have a bookkeeper, check in with them and ask thoroughly about any potential problems in the business. Get yourself familiar with the way the business runs so you’re on top of any potential issues before they snowball.

Avoid neglecting any standing loans, debts, or bank notices. Failure to upkeep with these issues can lead to losing the money you didn’t need to lose. Worse, it could even lead to accidental embezzlement, which will likely get taken to court.

In addition, keeping your books in order lets you see what expenses have given you a return on your investment (ROI). For example, if a certain product is selling high, you can funnel more expenses into marketing than if some other product isn’t doing so well. Of course, take a look at how much marketing you spend on each item so you know for sure that the item’s lack of demand is the cause for poor ROI and not bad marketing.

Practice Good Financial Habits

Make sure you have financial policies rolled into the business itself. This is to make sure everybody is on top of things. Set aside time to review and update financial information for both the business and yourself. The financial health of your business can remain in a good state so long as you keep on doing the above tips consistently. Small businesses often have trouble with both time and money due to poor planning and fewer resources. Plan and keep a tight leash on any financial policies to make sure no legal troubles arise from employee incompetence or fraud.