8 Simple Steps to Effectively Manage Your Small Business Finances

When managing a business, money is (almost) everything.

It’s therefore super important to learn about how to manage small business finances effectively in order to maximise your venture and reach the top of your industry.

You might wonder, “How can I better manage my small business finances?”

Here’s everything you need to know to help you manage small business finances.

Manage Small Business Finances With These Easy Tips

Being organised and prepared will allow you to manage small business finances with ease and keep you and your business functioning as required.

Here are eight simple and effective ways to manage small business finances.

1. Set Up A Filing System

Keep your business records filed and organised at all times. It will help you keep track of all your financial reports and other documents your business needs to function.

These are the common pieces of documentation you’d have to keep track of on a regular basis:

• Accounting records
• Bank statements
• Bookkeeping records
• Contracts
• Employee/Outsourcing records
• Permits & licenses
• Tax papers
• Vendor records

Many businesses either have the actual paperwork or a digital filing system. However, it’s best to have them both for your security. Should the physical copy go missing, you’d still have a digital copy and vice versa.

The first step to tracking your expenditure is ensuring everything is written down. 

2. Pay Yourself

You’d want to separate your personal and business accounts as a business owner. This will help you get a clear picture of all the financial information you’re managing.

You might be tempted to put all your money into the funds your business uses on a day-to-day basis to provide additional capital. However, this could lead to you mixing everything and poorly managing small business finances.

Pay a specific salary to yourself, like how you’re paying employees, and manage personal and business finances SEPARATELY.

3. Don’t Be Afraid Of Debt

Many small business owners tend to avoid business loans because they fear it could affect their financial health.

By applying for a small business loan from Lumi, you can boost your cash flow statement, upgrade your equipment, and grow your business.

It all boils down to how you’re managing finances and planning to cover costs after your loan.

Only apply for loans with payment terms and interest rates you can afford, so you can effectively leverage such loans for business growth. 

4. Review Your Expenses Regularly

When it comes to easy tips for managing business finances, it’s best to keep an eye on your money, especially your income, profit, and business-related expenses.

The most common documents you can monitor to observe these are the following:

• Accounts payable and accounts receivable reports: How much money is owed by or to your company
• Balance sheet reports: Assets, liabilities, and net equities
• Depreciation reports: Breakdown of the value of the assets of your company
• Profit and loss projections: Income, expenses, and profits over time
• Statement of cash flows report: Cash flowing in and out of the businesses

When managing your business accounting, factor in all your payments, sales, and financial performance.

5. Invest in Accounting Software

Include accounting software, like Xero, in your business strategy, as it’s a great way to oversee your money and payments.

While keeping everything in a single spreadsheet can be easy, it can get disorganised in the long run as your venture grows.

There are many free or low-cost accounting programs you can try. Some have mobile apps that let you track them on your phone. 

Software makes everything more accessible and easy to monitor, even when you’re away from your business.

6. Know and Fulfil Your Tax Obligations

Your tax bill can have you scrambling for payments if you don’t prepare accordingly. Set aside money for your taxes to ensure your state obligations are fulfilled.

You can calculate your earnings before interest and taxes and multiply by your tax rate. 

Check with your tax adviser if the money you have set aside is enough for your bills and tax obligations.

You can also spread out your tax payments to have them feel like a monthly operating expense instead, helping you plan better for them.

7. Maintain Your Business’s Credit

Poor credit makes it more difficult for businesses to apply for loans. These loans are often necessary if you want to grow your business.

Keep an eye on spending and ensure you have no unpaid balances.

Only get the funding you can easily or quickly repay to be on the safe side.

8. Plan Ahead

Coming up with a financial plan is a fundamental part of building your business and can make a big difference in your business managing strategy.

As a small business owner, looking ahead in terms of financial planning and having a clear vision is vital. You should know where you see your business going in the coming years.

FAQs

You may have more questions on how you can manage small business finances.

We’ve gathered the most common ones to help you with your research.

Why Is Cash Flow Important to Small Businesses?

It’s common for a new business to encounter cash flow challenges or mismanaged finances if their financial management wasn’t properly planned.

Sometimes, you might need a boost in cash flow. If your business meets the requirements, you could consider applying for business finance from  Lumi.

What Are the Types of Business Funding?

There are different ways to fund your business to help it grow within your industry. They’re usually categorised into two types:

• Debt Funding – These are loans your business needs to repay with interest. It offers you capital, which could take weeks or months to earn otherwise. These include bank loans, merchant cash advances, business credit cards, government loans, and credit lines. 
• Equity Funding – This doesn’t always require repayment, even if your business fails. Instead, you give your funders a seat and a voice when making any financial decision for your business. Options include angel investors, venture capitalists, and equity crowdfunding.

No matter your funding option, ensure you can sustain it alongside your business’s daily expenses.

Conclusion

While it can seem overwhelming for some to manage small business finances, it’s important to remember how vital it is for your business’s future.

You can get professional advice to create a better flow and grow sustainably in your industry.