Finance management for small businesses involves keeping expenditures under control, allocating regular amounts towards savings accounts and being frugal – this will enable your small business to remain profitable while keeping cash flowing in.
Separate personal and business expenses. Keep a rainy day fund ready in case any unexpected costs impact your bottom line.
1. Create a Budget
First step to managing money is developing a budget. Whether using paper notes, budgeting apps on your phone, or software programs to track expenses and income for each month – including small expenses like coffee purchases each day! Creating an accurate list will allow for the management of finances more easily and can help protect you financially in times of trouble.
Determine your fixed costs (such as rent, salaries and insurance payments) and variable expenses (like raw materials and commissions) then add up revenue minus expenses to determine whether you’re making a profit; if not you must adjust costs or find ways to boost income.
2. Set Aside Money for the Future
At times of prosperity, it’s easy to put off creating a budget. But in times of hardship, a business requires sufficient savings in order to navigate these lean times successfully; otherwise the owner may need to postpone his or her plans or even sell off valuable assets or incur debt to remain operating.
Add an emergency fund to your P&L to protect against unexpected expenses and slow sales periods, maintain operations during periods of growth, and gain interest through savings accounts at financial institutions. Set aside money automatically each month – perhaps by creating a separate business bank account so as to protect from accidental spending of funds!
3. Pay Yourself First
Many entrepreneurs fail to put themselves and their financial goals first, which can be an issue when working hard on expanding a business. Savings and investments must remain top of mind!
“Pay yourself first” refers to allocating a portion of your income toward savings before spending any of it elsewhere – this can help build up savings over time while protecting against lifestyle inflation.
Saving can also help you prepare for planned large purchases such as a new car or vacation. It is key that you be honest with yourself about your financial status and set realistic savings goals so that your goals can be reached without creating additional stress on your business.
4. Stay Frugal
Frugality is essential to being an entrepreneur or small business owner. Unfortunately, it’s easy to become so consumed with running your business that personal finances slip out of sight; leading to overleveraged credit cards, insufficient retirement savings and poor spending decisions that may compromise its viability.
Create a budget to track expenses and estimate how much revenue your business will bring in every month, cutting unnecessary spending while providing your company with enough funds for necessary expenses.
Once your business has become profitable, it’s essential that you pay yourself a salary as this will provide an emergency fund and ensure there’s enough money available for tax payments.
5. Save for an Emergency Fund
Financial protection in an emergency can make a crucial difference when unexpected expenses arise. Without an emergency fund, unexpected purchases could require credit card purchases or seeking help from friends and family – both of which could quickly lead to debt accumulation.
Experts typically recommend setting aside enough savings to cover three to six months of living expenses, however if this seems overwhelming start by setting smaller goals. Reaching these milestones will build savings momentum and encourage you to continue saving.
Ideal, emergency funds should be kept in an account that earns interest while still being easy to access. Consider opening a high yield savings account which typically earns more interest than traditional savings accounts and only withdraw funds in times of true emergency such as broken cars, unexpected job loss or major medical bills.