Whether you’re a small or medium-sized business owner, you’ll agree with me when I say that every business needs adequate money at regular intervals to function smoothly. Having enough money is essential to keep operations running, pay employee salaries, purchase necessary inventory or equipment, and even take advantage of good business expansion opportunities. So, it’s only natural for you to invest your energy into creating and selling as much of your product as possible. But what about managing your business finances? You must manage the money your business is making to churn out a profit and avoid a negative cash flow. Simply put, money management is tracking your expenses and income and making sure you follow a budget. Here are five money management tips every small and medium-sized business owner should know:
1. Create a Budget
The foundation of any good money management plan – whether it’s for you or your business – is a well-crafted budget. As a business owner, how can you stay on top of your business finances without a budget? While creating a budget for your business, you must include all your essential expenses, all of your expected income and your entire expected profit. As for the time, it would be best if you created this budget for the whole year (using projected numbers, of course). From there, depending on the nature of business, break it down into quarters and then into months. Such an exercise will help you plan your finances much more efficiently. You’ll know when you can expect surplus income (so that you can invest in new assets) and when money will be tight (and when to get an online business loan, maybe). This is how a budget keeps your business out of financial trouble.
2. Be Aware of Upcoming Payments
After creating your budget, the next step is to know when all your payments are due. Paying your bills on time has multiple benefits for your business. You get to strengthen relationships with your lender(s), who won’t worry about you defaulting on payments. You’ll also enhance your credit history, which is crucial, especially if you’re a small and medium-sized business owner. A strong credit score will help you qualify for bigger online business loans in the future (should you need one). Most importantly, it will help you build a credit reputation as a financially responsible business owner who always honours his payments on time. So, whether it’s a business loan EMI, credit card bill, or even utility payments, track all of them and pay them on time.
3. Track Your Spending Diligently
Every business incurs considerable costs in its daily operations. From rent/mortgage payments to payroll costs, it’s easy to get overwhelmed by the sheer number of items in the first place. This is where a budget comes in handy and why it’s good practice to track all your expenses. It’s very easy to apply for an online business loan if you have business expenses to take care of. While it’s not bad if you’re out of options, you’re adding to \your debt levels. And it’s easy to put something on your credit card and forget about it, which will eventually make you go over budget. So, every time you incur an expense for your business, record it (even if it’s ₹100). This will help you develop a habit of tracking your expenses and avoid overspending.
4. Stay on Top of Your Accounts Receivables
Making a sale is always great, but it matters very little if you don’t collect the money associated with it quickly enough. As you may already know, your accounts receivables refer to the money that all your customers/debtors owe you for the products and services you’ve rendered to them. So, while your sales figures may be a good indicator of your company’s health, it means very little if you don’t collect the money fast enough. Every business has a different collection cycle based on its industry. It’s good practice to keep the gap between your invoice date and the date you receive the money as short as possible. No customer/debtor should fall too far behind on their payments to you, and you must track it as diligently as possible.
5. Have a Contingency Fund
There are bound to be periods where sales aren’t great for every business. Or, you’re not able to collect your accounts receivables quickly enough. The important thing is that you shouldn’t let daily business operations get affected even during such periods. So, maintaining a contingency reserve of money is essential. This will help you meet unexpected expenses without impacting business operations. This is your “emergency fund” for your business, and you need to create and build it as such.
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The points mentioned above are five essential tips every business owner needs to manage their business finances properly. Once you get into the habit of tracking all your expenses (like business loan EMIs) and projected income, it will hold you in good stead. If you’re a small and medium-size business owner looking for an online business loan, KreditBee will surely help you. KreditBee is India’s leading business loan company that offers loans through its mobile app. To get more information on how you can get business loans, email us at [email protected], and we will take it from there.