To help your small business thrive financially, we’ve gathered 20 valuable tips from CEOs, founders, and other business professionals. From prioritizing invoicing for timely payments to embracing business debt wisely, these experts share their proven financial management strategies for small business success.
Prioritize Invoicing for Timely Payments
One financial management tip that has been particularly helpful in my small business’s success is prioritizing invoicing. While this might not typically be considered a highly unorthodox move, I’ve found it to be key in keeping accurate records and ensuring timely payments from clients.
By dedicating regular time each week to reviewing and resending any outstanding invoices, I have been able to more effectively manage the cash flow of my business as well as get compensated for services quickly and efficiently. This also eliminates the burden of having to chase down overdue bills and resulting stress on both myself and my clients.
Maintain a Detailed Record-Keeping System
It may not sound glamorous, but maintaining a detailed and accurate record-keeping system is pretty essential for your success. It’s the only way you can keep an eye on your cash flow, spot areas where you can cut costs, and understand how your business is performing financially.
Moreover, you’ll be a lot more prepared when tax season rolls around and won’t be running around to gather your data. And if it sounds overwhelming, you can always deploy good accounting software or hire a professional bookkeeper to help you stay on top of things.
Control Spending by Reducing Costs
Businesses must keep their spending under control while maintaining client satisfaction. This is particularly true for small firms. Every firm faces two kinds of costs: fixed and variable.
While fixed costs must be absorbed regardless of whether your firm is profitable or not, there is room for savings in variable costs. Instead of purchasing expensive branded software, you might work with free, cloud-based, open-source software, which is just as good.
Instead of traveling long distances, I suggest using free internet calls and video conferencing. You might also decrease costs by bartering your services with other specialists.
Establish Bookkeeping and Hire Accountants
Back when our company was just a startup, we handled our own bookkeeping since it is very important to stay on top of our accounts and keep things accurate. We chose to do this since we are in the finance niche. However, if your budget allows an accountant, then, by all means, seek one out.
As our business grew, we hired an accountant to keep our books because we wanted to be focused on our business rather than handling financials. We also had peace of mind that our accounts were getting done accurately and efficiently. We saved a lot of time and mental energy by handing over those responsibilities to someone who could probably do it twice as fast as we could.
With this, I recommend small businesses establish their bookkeeping as soon as possible. This sets the stage for financial transparency and responsibility, facilitating long-term success and growth.
Invest in AI for Financial Automation
Research shows that small business owners can spend over 100 days per year on bookkeeping. This is why I suggest you invest in AI software to automate your finances.
When I started my first business, AI wasn’t as powerful as it is today, but it still enabled me to automate invoicing, estimations, and tax accounting.
Today, AI is far more developed, as it can complete more complex tasks like account reconciliation and data reporting. So if you find yourself spending too much time managing your small business’s finances, opt for AI software.
Create an Emergency Fund Safety Net
Having a secret stash is one of the most important things for private ventures because it gives them a financial safety net in case things go wrong.
By putting cash aside routinely, you can develop reserve funds that will cover three to six months of high costs. When the economy is down, a secret stash gives you more leverage and flexibility over your money. This increases security and safeguards the company from potential problems.
Prioritizing and automating savings ensures a consistent strategy is always used. Small businesses can protect their operations, keep their finances stable, and build long-term resilience in uncertain times by placing an emergency fund at the top of their priority list. With a well-thought-out plan for your emergency fund, your business will be more prepared and on the path to success.
Stay on Top of Tax Deductions
One financial management tip that has helped my small business is to make sure to stay on top of tax deductions.
Keep track of business mileage, use of your home office, and other expenses that can reduce your tax liability. It’s easy to neglect these things, but don’t fall into that trap. Make it a habit to keep accurate records and receipts, so you can take advantage of all the tax benefits available to you.
By doing this, you can reduce your tax burden and free up more money for your business. Plus, being organized and compliant with tax regulations can help build trust with customers and investors. That is why you should be sure you have a system in place to manage your tax deductions and stay on top of it regularly.
Develop a Well-Structured Budget
In my experience, a well-structured budget is critical for properly managing the finances of a small firm. Begin by listing your sources of revenue and fixed expenses, such as rent, utilities, and employee wages.
Then, budget for variable expenses such as marketing, supplies, and upkeep. When calculating your revenue, be practical and conservative, and consider setting aside funds for emergencies or unforeseen needs. Review and update your budget on a regular basis to reflect changes in your company’s financial performance.
Monitor and Evaluate Spending
To achieve financial stability and long-term success as a small business owner, you must constantly monitor and evaluate spending. Cutting costs at the proper moment allowed my business to maximize our cash flow, preserve profitability, and effectively use resources.
We could improve our bottom line and establish a leaner, more efficient organization by finding areas where expenses could be decreased without sacrificing product or service quality. This involved identifying more cost-effective alternatives as well as applying technology solutions that streamline processes.
Reviewing and analyzing expenses regularly enables business leaders to make informed decisions and adjust to changing market conditions.
Separate Business and Personal Finances
One crucial lesson that I learned early on when I started my business was the idea of separating business finance from personal finance. It’s very easy to dip into the business kitty to finance your personal things, and in most cases, that money is never accounted for.
This is a very big mistake. Business finances should only be used for business, and they must be tracked and accounted for at all times. If, for some reason, you need to take some money from the business to use personally, make sure you refund or at least account for it in some way or another.
Separating business finance from personal finance may also help you manage tax obligations better. It may also save you from the possible risks of liabilities in case the business doesn’t work out.
Schedule Regular Budget Assessments
Our small business has been able to stay on track in part because we continue to take a proactive stance when reviewing and adjusting our budget. We learn a lot about areas that need attention and opportunities for optimization by routinely evaluating our financials and comparing them to our goals.
I personally think it’s important to regularly assess our budget. This routine enables me to see any inconsistencies, keep tabs on our spending, and make sure we’re allocating resources wisely. By regularly observing our financial performance, we can make appropriate modifications like cutting back on wasteful expenses or reallocating money to projects that yield greater returns.
Track Your Cash Flow
Keep track of your cash flow by regularly monitoring and categorizing the inflows and outflows of cash in your business. This can help you to identify any potential cash flow issues early on and develop strategies to address them before they become major problems.
Additionally, consider developing a budget and regularly updating it to reflect changes in your business, and implementing strategies such as reducing costs and increasing revenue to improve your financial performance.
By taking a proactive approach to financial management and staying on top of your cash flow, you can help your small business to thrive and achieve its full potential.
Focus on Long-Term Sustainability
As a business owner, you may be tempted to chase profits or make decisions that could have an immediate positive impact on your bottom line.
However, this kind of short-term thinking often leads to unsustainable practices in the long term. Instead of solely focusing on immediate financial gain, think about how each decision you make can affect your business’s sustainability. Consider ways to reduce costs, streamline processes, and create more efficient workflows that will help you maintain your competitive edge while still being cost-effective. This kind of foresight lays a firm foundation for your business to grow and succeed.
Outsource Financial Management
Don’t handle this yourself. Leave it to a professional so you can focus on your business’s growth. Initially, I tried to do all my financial record-keeping and paperwork myself, and I spent more time in my office than actually shooting photos. I made a mess of it too!
That’s when I decided to outsource my financial management to a bookkeeper and accountant who knew what they were doing and how to do it efficiently. They helped me get a better record-keeping process in place, saved me money, and gave me the time to focus on my photography.
I now have people who keep me accountable for my spending, make sure everything is submitted on time for tax, and they provide me with the expertise I needed to optimize my financial processes and reduce any financial risks. It’s the best decision I made for my business, and I am happy to know that my finances are in expert hands.
Build Strong Business Relationships
Good relationships with business partners can lead to better deals and more reliable service for your customers. You should build a strong team within your own business that includes manufacturers, suppliers, and others who help keep your operations running smoothly. Additionally, having a good accountant, financial advisor, and insurance agent will help ensure your financial health.
Preserve Accuracy in Financial Records
Every small business relies on effective financial management to succeed. One financial management tip that has proven beneficial is maintaining a detailed and accurate record of all expenses and income.
By diligently tracking financial transactions and keeping organized records, small business owners gain valuable insights into their cash flow, identify trends, and make informed decisions. This practice enables them to monitor profitability, identify areas of excessive spending, and implement cost-saving measures. It also facilitates tax preparation and compliance, making financial reporting more efficient.
By maintaining meticulous financial records, small business owners gain a comprehensive view of their financial health, allowing them to make proactive adjustments and drive their businesses toward sustainable growth and success.
Utilize Cloud-Based Accounting Software
While you may certainly download standard accounting software to manage your accounts, I believe it will never provide the same level of convenience as cloud-based accounting software.
Web-based software gives real-time insights since it allows you to save, update, track, and access data from any location and at any time. You can work with your data from anywhere, whether you’re at home, the office, or on the road. It is error-free, trouble-free, and reliable.
Effectively Manage Expenses
Learning to control and manage expenses is one of the most important things I have done as a small business owner. After all, if you aren’t able to keep your costs in line, then it doesn’t matter how hard you work; it will be difficult to succeed.
I focus on making sure that I don’t waste money needlessly by shopping around and trying to get the best deals I can. When it comes time to purchase something, whether it be supplies or equipment, I always research different vendors so that I can get the most bang for my buck.
I also track all of my expenses throughout the year, so that I know where our money is being spent and how much I have left. By doing this, I’ve been able to identify areas where we can save money without sacrificing quality or service.
This simple tip has saved me thousands of dollars over the years and has allowed my business to thrive.
Conduct Regular Financial Audits
Make it a regular task to conduct a financial audit. This helps ensure that your budget is properly allocated according to your priorities. It’s also a way to ensure that no cent goes wasted because of innocent oversights.
For example, your business card might be getting charged for long-forgotten subscriptions you’re no longer using or ads that are still running even after the campaign. Be thorough in checking these details, and you’ll be surprised by how much money you’ll actually save.
Embrace Business Debt Wisely
Far too many small business owners fear debt. Unlike household debt, which tends to indicate overspending, business debt is a tool that fuels growth. Eschewing financial products like loans can mean missing opportunities, so don’t hesitate to utilize what is available to you.
Using debt wisely means exploring your credit options early. Don’t wait until your brand blows up: know what is available ahead of time. This will help you budget when the time comes and give you a chance to familiarize yourself with the terms. The last thing you want is to be scrambling to secure financing at the last minute. You might discover that you missed striking when the iron was hot.
Brett Farmiloe is the founder of Terkel, a Q&A platform that connects brands with expert insights.