Even if the business is small, it faces different challenges during its formation and operation. Surely, money concerns are the most important for small business owners. Money management is one of the keys to the business success. It is important to pay attention to the following questions- how much money your company spends and how much it brings in. To understand all these and beyond, we will try to help you with some money management tips. Let’s get started.
The essence of money management
Money management is not about saying “no” to all purchases. It is about creating a plan to say “yes” to the most important things. No matter what amount of money you have, without clever money management all will seem too little. Overall, money management is about expense tracking, investment, budgeting, banking, and taxes. It is a kind of a strategic technique, which aims to reduce the amount that individuals, institutions, and companies spend on items having no significant value to their business. In short, money management is about:
- Avoiding any unnecessary expenses
- Going for the most cost-effective alternative
- Establishing the expected benefits, etc.
Money management is used in investment management. It deals with the question of what percentage or what part of wealth to put into the risk to maximize the utility function of the decision maker. If you want to gain great money management, you should establish budgets; analyze costs, income, etc.
Is your small business plan ready? If yes, start your budget. It is a guideline to help you fix any holes in your money management system. Follow up your expenditures and revenues. Don’t forget to allocate funds to necessary spending accounts and watch your savings. In fact, if you don’t have your specified budget, your company will be like blindfolded.
Money management is about being smart with the money. After creating your budget, you should focus on saving the money. Actually, there are a great number of ways to save money. First, you should reduce unnecessary expenses. For example, instead of paying much money on expensive furniture, you can just buy used but in a good condition. The saved money can be invested in more important areas of the business. What about applying for government’s resources? They can help you take the benefits of local tax credits as well as provide with free resources to build a strong strategy to gain economic success. Keeping reserve fund and/or cash in hand will help you handle any unforeseen business costs.
Boost cash flows
Money management is not only about maintaining it. To boost cash flows, you need to build strong strategies. How to increase the number of cash flows? For instance, you can provide discounts to customers or develop rewards programs for the customers. To broaden your target market and get new ones, you can add additional services.
Negotiate before signing
You have to make purchases for the business needs from vendors and/or suppliers. In this stage, one of the steps is to run negotiations to get better deals. Pay attention to purchase terms. It may be late payment penalties, grace periods, etc.
Bills on time
Always do your best to pay business bills on time. You can face serious penalties if you pay late fees for credit card and loan, vendor and utility, taxes, etc. Monthly reminders will help you make sure that there are no missed business bills.
Mistakes to avoid
There are certain money management mistakes, which can hurt both day-to-day finances and the whole working process.
- Getting a big tax refund each year
- Forgetting non-monthly expenses
- Spending more than needed
- Paying little extra on all credit card debt
- Saving whatever is left at the end of the month, etc.
Everybody makes money management mistakes. The matter is not about the mistake, but about learning from those mistakes. In fact, if you avoid these mistakes you will be a step forward to achieve your financial goals.
Advice from successful people
Surely, it is worth following theoretical tips available in many money management sources. However, to take the advice of people who succeeded in business is even worthier.
Gowri Mukherjee, CMO, and Co-founder, CreditMantri
“Lenders will look at your credit score and credit report and would like to see demonstrated repayment discipline in your personal finances as well. A poor personal credit record might result in high-interest rates and expensive repayment terms on your business loan.”
Manish Sinha, Founder, Skrilo
“Spending is easy. Spending on quality growth is not. Ask any start-up and I am confident that the foremost challenge in building a business is the balancing act of nurturing the growth wave and managing the cash burn. The pitfalls are all waiting to trip you over.”
Your business success is in your hands. Manage your money wisely to build a healthy business environment.