10 Essential Tips For Managing Your Small Business Finances

By Per Frennbro in Cashflow, Growth
FRENNS Business people

Here are 10 essential tips to help you stay on top of the day-to-day cash management of your business and help put your business on the path to growth.

Are you a small business seeking to prosper and expand but struggling to stay on top of your cashflow? If your finances can’t keep you afloat, maintaining a profitable business can be a challenge. Staying on top of your financial affairs is key to keeping cash flow stable and providing enough money to continue to invest in your business to help it grow.

These tips should help you successfully manage your small business finances.

1. Learn as much as you can about finance

One positive step to effectively managing your company’s finances is to learn as much as you can about the various components of finance. Learn how to interpret and understand financial statements; which contain four core components. They are:

– Balance Sheets: Balance sheets show what a company owns and what it owes at a fixed point in time.

– Income Statements: Income statements show how much money a company made and spent over a given period of time.

– Cash Flow Statements: Cash flow statements show the exchange of money between a company and the outside world also over a given period of time.

– Statements of Shareholders’ Equity: The “statement of shareholders’ equity” shows changes in the interests of the company’s shareholders over time.

Learning about financial statements will help you understand the role of money and how it represents the financial status of your business.

2. Stay on top of invoicing

Dispatch invoices promptly after providing your business’ goods or services and always follow up on them after they are sent. Perhaps use an automated as opposed to manual invoicing system.  If you need a cash advance on outstanding invoices, see what options are available. FRENNS offers high speed invoice financing for small businesses at low cost. Factoring your invoices (or otherwise described as [invoice financing]) allows immediate payment for invoices rather than waiting 30 days or longer for payment and tying up working capital as a result. FRENNS services advance the amount of the invoice minus a “discount” and provides a “rebate” when invoices are paid.

4. Consider using an accounting software system

to help you monitor and manage your outgoings and income. There are many accounting systems that can help you keep track of your business’ cash flows. A good accounting software system can generate reports and analysis of profits, losses, debtors and creditors, inventory, sales and forecasting.  It can be used to automate tasks such as calculating pay, calculating VAT and will help reduce accounting errors.  Accounting systems can also be used to easily interface with other systems, such as online [invoice financing] systems and banking systems.  Using accounting software can help you save time and money and offer you valuable insight into your business. If you choose the package carefully, investing in an accounting system can be one of the best decisions you can make for your business. Examples of popular accounting software packages include SAGE, FREEAGENT or EXACT

5. Constantly review your costs

Keep track of all your small business expenses. They can build up without you being fully aware of them and take you by surprise! Especially the small, relatively insignificant expenses.  Every business faces 2 types of costs: fixed and variable. While fixed costs have to be borne irrespective of whether your business is making money or not, there is scope for savings in variable costs. Here are some practical examples of how you can cut costs:  Whilst it’s ideal to meet clients and customers face-to-face, consider cutting travelling costs by making free online calls or opting for a video conference. If business travel is required, opt for the basic, no frills hotel and avoid overspending on luxurious travel and accommodation.  Organise your business trips as if you were paying for them yourself. Consider using expense management tools or applications such as Concur (https://www.concur.co.uk/).

6. Set realistic financial projections

Having a realistic view of the future cash flow and finance obstacles your business may face in the medium to near term will help manage your expectations and better prepare you to overcome any financial challenges.

7. Be frugal!

Do pay yourself but while your business is growing consider setting your salary as low as possible and offer only mandatory benefits to employees. What you save now might give you more flexibility in the future when cash flows might be tight. When it comes to wholesale supply costs, every penny saved is a penny earned. If you are running a business that regularly makes a lot of wholesale supply purchases getting the best deal on supplies can make a huge difference to your business’ bottom line. Constantly monitor supply costs by checking for discounts and checking against alternatives.

8. Don’t spend prematurely

Even if you know you have a big order or new client coming in, try not to get carried away with spending on business cards, marketing materials, cars or inventory before any actual revenue comes in. This will hopefully stave off a cash flow bottleneck.

9. Take care when expanding

Expansion is of course great and the goal of most if not all business. However, aggressive growth and injecting substantive amounts of money into expansions that are too drastic may harm a small business. Whether you are increasing product scope or increasing distribution, it’s important to have a long-term growth strategy. Make sure expansion is done steadily and wisely.

10. Consider renting instead of buying

Leasing equipment instead of buying helps you avoid maintenance costs and can also prevent you from overpaying on equipment only needed for a specific period of time. You could also consider renting your office space, as it makes relocation and expansion easier as the business grows.

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Retain sufficient working capital. Working capital is the backbone of any business, so learning how to maintain or generate more cash in your company is vital to success. It’s essentially the cash you need to operate. Insufficient working capital can also limit your capacity to take advantage of new unexpected business opportunities. For example, if your competition suddenly ceases you may need more inventory to service their customers and would need working capital to buy that additional inventory. Working capital will help your business remain agile. Without it, you might find it difficult to react quickly to changing circumstances. Small businesses typically have insufficient working capital to get them through the start-up phase and many businesses fail due to insufficient working capital. Making sure your business gets paid for the goods and services it provides is still the most elementary way to increase working capital.  Factoring your invoices (or otherwise described as [invoice financing]) allows immediate payment for invoices rather than waiting 30 days or longer for payment and tying up working capital as a result.

Conclusion: Running and owning your own business is both exciting and challenging. Some challenges and difficulties can be avoided or mitigated by sound money management. Keep the above tips in mind and give your business a better chance of a positive future and prosperity!

 

Per Frennbro, CEO
Per Frennbro, CEO

About the Author: Per Frennbro is the CEO of FRENNS, which offers high speed, low cost invoice financing for small businesses. As a serial entrepreneur, Per focuses on helping both small and medium sized businesses take control of their cash flow. Visit FRENNS  and see how you can turn your invoices into working capital to help your business grow and prosper.

 

About the Author: Per Frennbro is the CEO of FRENNS, which offers high speed, low cost invoice financing for small businesses. As a serial entrepreneur, Per focuses on helping both small and medium sized businesses take control of their cash flow. Visit https://www.frenns.com and see how you can turn your invoices into working capital to help your business prosper.

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