One of the major pitfalls of small businesses that have failed is how they managed their money. Many small businesses report cash flow issues that can be challenging to handle, particularly when the business is new and unsteady. But there are various money management steps that you can take right now to ensure your business is never strapped for cash. These include the following:
1. Meet Deadlines
It’s important to know when bills such as business loan payments, accounts payable, and credit card payments are due. You can ensure everything is paid on time by automating the accounts payable process. Not knowing the due date for these and failing to pay the bills on time can lead to late fees, added interest, and even lower your business credit rating. If you’re with a big bank, always make sure to research their pesky fees and deadlines — some of which are hidden! — like Bank of America banking fees.
If you don’t think you need to stick with a big bank, consider an online banking service that offers no or low fees, which can give you peace of mind. Regardless of the bank you choose, it’s necessary that you meet all deadlines. Record every payment and set reminders in order to avoid falling behind.
2. Monitor Spending
It’s also very important to monitor just how much money you spend. Monitoring your spending helps you avoid bills that you don’t need — even the smallest transactions like a cup of coffee or a new stapler will add up!
The best way to do that is to open a bank account separately for different needs. Having a checking account, a savings account, and a credit card account will help you keep track of your withdrawals and spending. Logging each transaction in your accounting books is also a great way to stay on top of your spending.
3. Keep Business and Personal Funds Separate
Again, the best way to keep your business and personal funds separate is to open an account for each. This is a crucial step for money management since it doesn’t just allow you to keep track of both business and personal finances, but you’ll also get accurate bank statements.
These statements are important for tracking your business’ profitability and monitoring your spending. Separating your finances also helps you maintain more organized records and prevent overspending or missed growth opportunities.
4. Make a Budget
A budget is one of the easiest ways to easily manage your money. This is because budgets can help you set expenses and revenue goals, allowing you to have a plan for your business’ gradual growth.
Another benefit of creating a budget is that it gives you a clear picture of just how much you can spend, allowing you to be in control of your spending and avoid unnecessary purchases. Since a budget will also forecast the revenue you can expect your business to get, you can easily take steps to lower expenses if revenue is much lower than you expected.
5. Have a Cash Reserve
While using the above money management tips can help you improve cash flow, sometimes an emergency can leave you unable to cover even the basic business expenses. This can be where a business falls apart! The easiest way to avoid this potential pitfall is by having a small cash reserve set aside for this particular purpose. A business saving account should serve as the best option for setting up this cash reserve. Make regular deposits to this account and you’ll have a sizable cash reserve for those emergencies you can’t predict or control.