The most common challenge small business owners face is managing their finances. It is not surprising since most of them operate on small revenue streams, and when left unchecked, this can lead to bad financial habits that could potentially harm their business.
While cutting costs can be beneficial, it doesn't always guarantee success. Small business owners must also be intelligent and creative to meet necessary expenses for their business to run its operations. We listed some spend management strategy tips to help you improve your small business's cash flow.
What is spend management? Spend management is about learning how to handle your business's cash flow through tracking expenses and income, budgeting, investing, and setting goals. A solid financial management plan helps prevent negative cash flow that can lead to making payments, running out of money, and not collecting on accounts receivable.
That is why it is a must for any new business owner to educate themselves about the basic skills required to run a small business. Aside from equipping yourselves with a business bankruptcy survival guide, you also need to know how to be organized and track your financial invoices throughout the year. By doing so, you are creating a future for your company that is financially stable and less likely to fail.
Here are a few things you should do as a new business owner looking to utilize business spend management.
Managing, tracking, or monitoring your cash flow is a no-brainer and everybody knows that this is a clear-cut practice if you want to stay on top of your finances. However, knowing how to do it is one thing and another to execute it effectively.
When monitoring your spending, consider the importance of spend visibility management. It allows for a detailed spend management analysis report that you can use as a guide to know what you are purchasing, how much you spent, the purpose of your purchase, the internal operations of the delivery of supply, and the costs associated with each purchase.
On the other hand, If your business has multiple accounts (e.g., checking account, savings account, credit card account), make sure to track all your withdrawals or deposits from each and factor in uncashed checks. This way, you are saving yourself from having an overdrawn account and overdraft fees.
Consider using software to record your invoices or any accounting transactions, so you can easily carryout your business spending management.
Determining your expenditures and return on investment gives you an insight into what investments may be worth continuing and what are not. It includes payroll, staffing, marketing, and overall operating costs of your business. Try to reexamine your payroll management, especially if you're running on a limited budget. You can consider a bi-weekly pay schedule for your employees as this is easier to manage.
After tracking all your expenditures, as mentioned, you should focus on the ROI that comes with it. Applying this practice can help you cut back on the initiatives that work for you and your business and avoid spending all your hard-earned cash on unnecessary spending bets. It also allows you to cut costs, stay within your budget, and deliver high-quality services and products without frills.
If your business and personal funds are in one account, you are vulnerable to overspending and missed growth opportunities. Don't wait until your business generates revenue to open a separate bank account.
Doing so is crucial for money management as it allows you to track profitability and monitor business spend.
Open a bank account specifically for your business and utilize it for all expenditures, big and small. You may control cash flow and keep tabs on your firm's financial health by designating a specific area for company funds.
Many new business owners are afraid of loans. With the idea of financial repercussions leading to failure, who wouldn't be scared? However, considering using loans and other forms of debt can be beneficial in providing the cash flow boost you need to grow your business. Just make sure to choose the right ones.
There are different types of loans and business capital, each with its obligations and hidden costs. Interest rates and available payback terms for small business loans vary. Find the ones with a reasonable interest rate and a payback schedule that works with your business goals.
Investors and other private sources of funding may provide additional financial assistance. Do your investors possess the expertise necessary to assist your company? If not, it might be preferable for you to look for financing from lenders who have more resources available.
Applying money management advice will greatly enhance cash flow management. But occasionally, unplanned events occur, leaving you with a last-minute expenditure to pay.
Maintain a small business cash reserve to aid with money management as necessary. By establishing a company savings account, you can begin building a cash reserve. Make sure to update your cash reserve consistently.
It's best to plan for five to ten years to keep up in this ever-changing and competitive industry.
Any small business owner may successfully traverse the early financial difficulties of beginning a firm with the support of proper money management advice and financing expertise. Remember to have a plan for the future, track your business spending, focus on ROI, separate your business and personal funds, and don't be afraid of taking out loans.