Let’s be real: running a business is an around-the-clock balancing act.  From dealing with stakeholders to making directional decisions, entrepreneurs need to constantly be at the top of their game to keep their venture afloat. Coming up with a sound business strategy is critical for your business’s health and continuity, and one key variable that hinges on your decision-making skills is your business’s finances. We’d go as far as to say that your business’s finances are its lifeblood. If you don’t practice effective financial management, every department can feel the immense strain. And at a certain point, it can buckle and collapse entirely.

Many eager entrepreneurs often enter the business realm without paying much attention to their financial health. If you abide by this mindset, it’s important to reframe your thinking and uphold effective financial management practices.

Want to learn more? Here are some financial management tips that every small business owner should know.

Why is Managing Business Finances Important?

As they say, money makes the world go round—and this is especially true in the business realm.  If you ignore your finances, you’re essentially setting yourself up for future failure. Knowing your cash flow helps you make learned decisions. It helps you project your income and help you set prices and costs. It also helps you know how much money is circulating in your business. This is an important figure for keen investors and stakeholders.  Most importantly, proper money management helps you determine the financial well-being of your business at the present moment. 

This knowledge can help you make more informed business decisions. This is a valuable factor that can be used in navigating the dynamic and often hectic world of entrepreneurship.

Not keeping track of your finances is like driving a car blind.  If you end up in an inevitable collision course, it could spell doom for your company.  Managing your finances, in essence, helps you have more control over your vehicle. It can help you establish clearer goals and lead to better outcomes in the long term.

5 Tips and Strategies to Manage Your Business Finances

Ready to take your business to the next level? Here are some tips you can implement in your business to improve its financial health.

1. Make a systematic budget tracker

Running a business involves a fair number of purchases, sales, acquisitions, and other miscellaneous transactions.  Whether you’re dealing with a small amount of inventory or a constant stream of sales and bulk orders, it’s vital to set up a budget tracker to keep track of these activities.

A budget tracker helps you keep track of the income coming into your business, as well as the cash flowing out. This can be established using software like Microsoft Excel or more advanced and dedicated tools like Quickbooks.

Regardless of the software used, having a budget tracker removes the financial guesswork from various business activities, providing a clear and precise overview of your finances in an easy-to-gloss format.

Furthermore, establishing a budget also helps you keep track of key business variables, such as your monthly gross income, fixed expenses, variable expenses, inventory, payroll expenses, and purchases. You can also use this information to create key business ratios to determine business performance.

Knowing these metrics, and having them updated in real-time, can help you make better decisions on the fly while also providing a detailed account of business activities you can turn to in the future. 

2. Separate business and personal finances

If it’s your first time running a small business, it can be tempting to take out some of your profits and use them for personal use. The opposite can also apply, as in, taking out some personal funds to infuse capital for your business.

While these actions may seem harmless at a glance, they can lead to disastrous consequences for your accounting records.

One of the biggest risks of keeping these finances in the same savings account is the increased likelihood of errors in bookkeeping. You or your accountant may not be able to easily tell which transaction falls under what category, potentially causing discrepancies in your final financial statement. 

Another more tangible problem that can arise from unseparated finances is the lack of asset protection. 

In the chance that a company defaults, business owners with unseparated accounts run the risk of having their personal assets seized.  On the contrary, business owners with separate finances can rest assured knowing that their personal assets won’t be claimed, particularly if they’re a partnership or LLC.  Read more here to understand the harms of mixing finances in more depth.

3. Manage debt and tax effectively

Every legitimate business should form a compliant and healthy relationship with its respective regulators and lenders. This can help them avoid excessive penalty fees and a tarnished reputation.

For instance, businesses should always make it a priority to pay their taxes in full and on time to avoid any penalties. That said, businesses can also utilise tax deductions and deferring income strategies to minimise their payment. Just be sure that you’re doing so legitimately.

Secondly, it’s also important to keep your debt under control. You don’t have to avoid loans altogether, just use them wisely.

Whether you’re paying off a line of credit, SBA loans, or equipment refinancing, be sure to pay your debt following the contract you’ve signed with the lender. 

Nonpayment or late payment can lead to high interest and penalty fees and a lowered credit score, which is never a good look for your business no matter how you spin it.

4. Don’t do all the work yourself

Running a business isn’t something that’s done in complete isolation. You’d benefit greatly from receiving help from professionals who know how to run speciality tools intended to make your business run smoother.

In the realm of business maths and finances, the professionals you can entrust are your accountants, auditors, and financial analysts. These people are trained to handle bookkeeping, balancing, and making balanced financial statements. 

Not only are they trained in this field, but many of these people are also equipped to handle tools and software that can make financial management more convenient, streamlined, and an overall better experience for everyone.

By entrusting the work to the right accountant for the job, you can focus your mental power on more macro-level decisions, such as growing your business. 

5. Incorporate your finances to match business goals

As a business owner, it’s critical to have long-term goals the moment you’ve started your operations. These goals can be used as benchmarks to lead yourself and your team to a reasonable business objective.

At the end of the day, your finances are a means to achieve these goals. They don’t exist in a vacuum; they hold undeniable influence in every channel and every department in your organisation. 

Therefore, it’s essential to keep your business goals in mind when making big financial decisions. 

If, for instance, your goal is to expand your business’s reach in another city, then you should use your finances to help you achieve that goal—whether by marketing traditionally or digitally.

Furthermore, it’s also important to periodically reassess your business goals. The business landscape is constantly evolving, and growth factors could be redefined as the industry or environment takes up a new form. 

During these times, you can use your financial resources as a tool to uncover trends and make breakthroughs in the industry, whichever is most appropriate at the given time.