Money management in small businesses is the process of budgeting, creating objectives, tracking spending and revenue, and investing.
Late payments, cash shortages, and failure to collect on accounts receivables can stem from improper money management.
You’ll need enough money to cover expenditures for your business to operate correctly. By implementing a sound money management strategy, you can avoid periods of negative cash flow and ensure that your company is on pace to generate a positive cash flow.
You can use these pointers to discover how to handle money in a small businesses properly.
1. Plan your revenues and expenses
Appropriate sales and expenses planning is essential to maintain proper levels of cash in the business. The following ways can help you to assess your revenue and costs.
○ Match your income sources
It is essential to evaluate the sources of your income and how much revenue your business is regularly generating.
You can start with your sales data. Then, during the month, you may add any new sources of income. Your business strategy will determine the overall amount of income streams you have.
Regardless of the number of revenue sources, ensure that you account for all in MIS or general ledger. It includes cash sales, card sales, direct debit, etc. Add up all of these to obtain a clear picture of your overall monthly income.
Likewise, the same for the expenses.
Check our guide on : What is turnover in your business and how do you work it out?
○ Determine fixed costs
After you’ve figured out the revenue, it’s time to figure out expenses, starting with fixed costs.
Fixed costs do not change every month; that is, they remain fixed. Rent, utilities (such as internet or phone subscriptions), business rates, website hosting, and payroll expenditures are all examples of this.
Examine your spending to determine which ones have been consistent from month to month.
Check our guide on : What is Management Accounting and Its Functions?
○ Include variable expenses
Variable expenses are not fixed and fluctuate month on month depending on your company’s success and activities. For example, travel costs, shipping charges or commissions on sales.
You can spend more on growth and marketing if your earnings are more extensive than planned.
However, if the revenue is falling short of expectation, consider reducing these variable costs until you increase profitability.
○ Predict one-time spendings
Many business expenses, whether fixed or variable, will be recurring fees paid each month. However, these expenses will occur considerably less frequently. Just remember to include such costs in your budget as well.
If one-time costs are coming up (for example, a business course, a new laptop, rent deposit), including these in the budget will help set aside the funds needed.
○ Compile everything
After following these steps, put together all the data collected to understand where the business stands financially. This will help in evaluating profitability and preparing a budget.
2. Have a cash reserve
Life might throw a curveball now and then, and you might find yourself in a situation where unforeseen expenditures are needed.
Keep a cash reserve for the small business to assist in handling money when in a crisis. By creating a company savings account, you may begin building a cash reserve.
Make sure to add to cash reserve regularly.
3. Ensure that you file your tax returns timely
If you wait until the last minute to file your tax returns, you may find a last-minute tax payment you can’t afford.
If you prepare and file a tax return early, you’ll know precisely what is owed and have enough time to arrange funds without incurring any additional fines or penalties.
Check our guide on : What is corporation tax? Guide for small companies.
4. Don’t let your energy go to waste
Are there any ways to save money by using less energy? Energy costs can be one of the most significant expenses, so it is crucial to keep a check. Check with several utility companies to see if any of them can provide a better price.
Also, include employees in finding energy-saving opportunities and encourage them to turn off lights and other equipment when not in use.
5. Charges from the bank
Examine the service you’re receiving from the bank, particularly when it comes to bank fees. Check out the rates at the other banks to see if you can get a better deal somewhere else.
If considering switching banks, consider what the company could require in the future (for example, a loan or insurance).
6. Invest in an accountant
Hire an accountant to help with money management and budgeting. A competent accountant will not only help with tax returns but also with business growth.
Therefore, you’ll need to find an accountant you can trust.
Check our guide on : 15 Ways an Accountant Can Help a Small Business Owner.