Managing money is one of the most challenging aspects of running a business for many entrepreneurs. Balancing the books, keeping track of expenses and income, and understanding the rules around paying taxes can be complex and time-consuming. To help you avoid problems and save time and effort, this handy guide outlines the golden rules to follow for simple, stress-free money management.
Implement a clear, effective budgeting process
The first step for any business owner should be to implement a clear, effective budgeting process. Drawing up a budget is essential for regulating spending, understanding where money goes and identifying areas to reduce or cut costs. It also helps you to maintain a firm grip on your finances, lowering the risk of cash flow issues and longer-term financial troubles. Start budgeting from day one. If you’re launching a start-up, analyze costs and create a robust plan, which details how you’ll make money and where you’ll spend capital. Update your budget regularly, using accurate figures rather than estimates where possible. Always round up rather than down. Your budget should cover one-off costs as well as regular expenses, such as commercial rent or paying back a business loan.
Your budget will enable you to calculate your income and outgoings. Combined with financial reports and forecasts, you can use the data to determine how much you can afford to allocate to growing the business, paying off debts or putting aside to build an emergency or contingency fund. It’s beneficial to save or invest as much money as possible, but clearing debt should be a priority, particularly if you’re paying off a high-interest loan or credit card.
Take advantage of financial tools and software
Some people prefer to utilize traditional accounting and bookkeeping methods, but others may be interested in adopting new technologies, tools and software to simplify processes and save time and effort. You can use cutting-edge software and online tools and apps to automate tasks such as sending a customer statement of account or invoice, issue payment reminders and generate templates and forms to make paying a bill a breeze. You can also employ general accounting software to keep track of payments and expenses, calculate taxes and help you create financial reports.
If you’re not familiar with innovative new accounting solutions, use the Internet to research software and useful tools, seek advice from tech consultants and financial experts and take inspiration from other businesses. Find out more about how other companies or entrepreneurs are using advanced software to help them manage their finances. Digitizing accounts will help you reduce the risk of errors, improve accuracy, save time and create more secure and accessible records and files.
Think carefully about borrowing money
Many business owners have to borrow money to launch a company or expand operations. Taking out a loan may be a viable option if you can afford to pay the money back and the loan will help you maximize profits in the future. If you’re already in debt, think very carefully about adding to the balance. Borrowing usually means paying interest, which can increase the value of outstanding debts dramatically. Try to clear debts before you take out any further loans or use credit cards.
Borrowing money is not the only funding stream available to businesses. If you’re looking to grow your company, or you need a cash injection, it’s worth exploring other avenues, including crowdfunding or seeking external investment. Crowdfunding has become increasingly popular. The global crowdfunding market is growing. The estimated value is expected to increase from 1.2 billion US dollars in 2024 to 1.27 billion US dollars in 2028. Securing investment is another option. This involves pitching to an investment firm or individuals or partnerships with an interest in investing in businesses. In most cases, investors provide funds in exchange for a share of the company. If you are pitching to investors, always ensure that you have facts and figures to hand, create a clear, punchy presentation and be prepared to answer tricky questions.
Consider outsourcing
Managing financial operations can be overwhelming and time-consuming. If you don’t have experience in accounting or expertise in managing the financial side of a business, you may feel like you’re out of your depth. For many entrepreneurs, there aren’t enough hours in the day to take care of finances on top of other tasks that underpin the day-to-day running of the firm. If you’re short on time, or you don’t have the knowledge, skills or experience to take charge of your business finances, there are options. One increasingly popular route for business owners is to outsource. Outsourcing involves working with third parties. It offers an alternative to hiring employees and can be very cost-effective.
If you’re thinking about outsourcing accounting and bookkeeping, it’s crucial to find the right agencies, firms or individuals for the job. Research local services, read reviews and client testimonials and arrange calls or meetings to get to know representatives. Find out more about the services available to you, compare quotes and offers and take your time to make a decision. It’s important that you choose a reputable company that caters to your requirements. The lowest price is not always the best value. It may be worth paying more if you have access to a wider range of services or a company with a better reputation, for example.
Think about adding to your team
Adding to your team is an alternative to outsourcing. If you don’t want to work with external agencies, or you need access to financial expertise continuously, hiring new employees may be the best option for your company. Consider your requirements, analyze costs and weigh up the pros and cons. It’s worth remembering that you don’t have to take on full-time members of staff. You could explore more flexible options, such as working with freelancers or hiring part-time employees if this suits your business better.
Issue clear instructions and offer simple payment options to customers
Healthy cash flow depends on customers and clients making payments on time. Issuing clear instructions and offering simple, fast payment methods are effective ways to ensure customers pay before the deadline. Clarity is key when communicating with clients about payments. Send detailed, comprehensive invoices, provide a statement of account and offer quick and easy access to customer support. If your clients have questions about payments, responding swiftly will speed up the process and reduce the risk of delays and mistakes. You can use emails, FAQ sections, blog posts, online guides and social media posts to explain and demonstrate payment processes, clarify outstanding payment values and issue polite reminders.
It’s helpful to make the process of paying for products and services as quick and simple as possible. Whether you run an online store, or you provide services, such as roofing, dog walking or cleaning, it’s beneficial to offer a range of payment options and hassle-free payment processes. Ideally, your customer should be able to follow a link, click a button or find your account details to make an online payment or bank transfer in seconds.
Use financial reports and data
Today, we have access to more data than ever. As a business owner, it’s invaluable to utilize relevant financial data and tailored reports to inform decision-making and help you plan. Take the time to review your accounts, balance sheets and income and cash flow statements and adjust your budget frequently. Use the data to monitor cash flow, detect early warning signs and identify areas where you could make changes to reduce risks or maximize your income. Utilizing data takes the guesswork out of financial planning and it can help you keep a tighter grip on your money.
Look for ways to increase profits
Making profits is a cornerstone of success in business. To keep going or expand, you need to make money. There are two main ways to increase profits. These include boosting sales and income streams and lowering outgoings.
Use your budget and financial data to identify areas for improvement and growth. Build on successes and cut back on unnecessary costs. Create more, better-quality leads with targeted marketing strategies and run promotions to encourage sales and raise brand awareness. Analyze transactions and use your budget to highlight potential savings. Perhaps you’re spending more than you need to on staff wages, for example, or your expenses bill for travel and accommodation has increased more than anticipated. If you can identify potential issues, you can work on solutions. You might want to introduce a cap on expenses or encourage your employees to swap some face-to-face meetings or conferences for virtual events and engagements. To save on staffing, you could explore temporary roles, seasonal jobs or offering full-time members of the staff the option to reduce their hours.
Managing money can be arduous for business owners, particularly those who don’t have an accounting background. Adopting good practices from the outset can help you simplify processes, save time and effort, reduce financial risks and increase profits. Draw up a clear budgeting strategy, make use of financial data and reports, and take advantage of innovative software and tools. Consider outsourcing or adding to your team, issue clear instructions to customers, provide fast, simple payment options and look for ways to maximize profits.