Management of business finances can be classified as one of the most important responsibilities of business owners. Small business finances can be tough to manage. Profits are a handful in the beginning and maintenance costs quickly go up the scale.
How often do you spot a new restaurant or a gift shop open up in your neighborhood? And does it always stay in business or shuts down within a few months? Well, the latter can be seen happening more often compared to the former. Roughly, only 2 out of 10 businesses live up to the expectations of their owners. In other cases, the business either ends up making losses or they soon reach the shut-down point. Unfortunately, it is often a result of poor market research and lack of financial planning.
Entrepreneurs, who fail to manage their finances from the very beginning, often find their firms failing.
Why Is It Important To Manage Finances?
Businesses run on finance. And small businesses, in particular, face a financial crunch. Profit margins do not shoot up immediately and even the slightest mistake can cost the owners more than their entire profits in a month. Owners of any kind of business, no matter small, medium, or large need to manage their financial situations responsibly.
Here are 3 tips that can help to effectively manage your small business finances:
- A Business Bank Account Is A Must
Many business owners who end up struggling with their finances make a common mistake: they use a single account for business and personal finances. No matter how confident you are regarding your financial management skills, some things are better kept separate. If you have a common account for all of your finances, you may end up spending more than you should. Also, some of you may be unknowingly using your professional funds for personal expenses. This call for tax trouble and your savings may run out without you even realizing it.
Therefore, the first step towards running a successful business is to open a business bank account and manage your business finances from there.
- A Healthy Credit Score Can Take You A Long Way
Credit score, whether personal or professional, must always be managed. No matter how positive you are about your expenses, having a backup plan does not hurt. And just like an individual, a business can also experience the need for credit at some point. To qualify for a loan from a bank or financial institution, reliability is key. Now, the question is, how can you come out as a reliable person or business? The answer is a healthy, well-managed credit score.
In order to categorize you as a trustworthy borrower, your lender would like to know if you make your payments in-time, pay your debts in full, you do not take long to pay your suppliers, and you do not already have a pending loan to pay. If you find it difficult to manage your accounts and you are yet to afford a professional accountant, you should not worry. There is a line of smart cloud accounting software, such as QuickBooks cloud hosting that can help you with your business accounting needs, giving you more time to focus on business expansion rather than sticking to your computer screens all day long.
- Planning Your Expenses Ahead Will Prevent Financial Pit-Falls
Unplanned expenses act as the ‘banana-skins’ for your business. Overspending is a huge red flag if you want to manage your business responsibly and you cannot afford to just run out of finances out of the blue.
Budgeting is necessary if you want to smooth-sail your business. The smartest thing to do is to divide your expenditure into classes. Operating expenses should be kept separately. Even when the business is shut down temporarily, you do not stop paying the facility rent, electricity bill, employee salaries, newspaper subscription, repair and maintenance of your machinery, and other costs that do not stop in an instant. Similarly, you can set apart funds for all the important expenses that you encounter while operating your business.
Business management is a challenge in itself. Plus, if you are a solo-entrepreneur, things will go out-of-hand on several occasions. But, the right kind of planning and a vision that goes far and beyond can be a real savior. Keeping the three tips, i.e. a business bank account, a healthy credit score, and planned expenditure, in mind is all you need to effectively manage your business finances. Apart from that, a smart cloud accounting software such as QuickBooks hosting can help keep the business management blues at bay.