Four tips for managing money in your small business

It’s not easy being a small business owner. You have to wear every hat, working across every area of the business, without necessarily being an expert in any of them. For example, finance is a critical aspect of any business, yet it’s an area where many small business owners struggle.

With recent reports suggesting that around 50% of businesses fail within the first five years, it’s important to stay on top of your finances to give your business the best possible chance of success. But with most owners learning on the job, how can you be sure that you’re doing the right thing for your company?

We take a look at four top tips for managing your finances as a small business owner.

Chase your invoices

Chasing payments is never a fun task, so it’s easy to put it off and just hope that your customers will pay on time. However, it’s important to remember that you’re running a business which relies upon generating income. Although it might be hard, you need to put your personal feelings to one side and get your business head on. There are many different  processes you can use to ensure timely payments are made, such as warning customers about late payment fees before completing the transaction.

Furthermore, having an efficient system in place for collecting customer payments will be vital to the survival of your business. If any invoices do become overdue, be sure to send the individual a payment reminder in the form of a letter, email, or phone call. If the invoice remains unpaid, you may need to consider contacting a debt collection agency to enforce the collection on your behalf.

Take payment in advance

If your business allows, try to take payment in advance for your goods or services. This means that you will receive the payment into your bank account before you do any work, so you can guarantee that you’ll be paid for your efforts. Not only does this help to mitigate any cash flow problems, but it can also help to build a level of trust between you and your customers, with both sides delivering on promises.

It’s worth bearing in mind that a lot of companies and customers simply will refuse to operate in this way, meaning there is a chance that some potential customers may turn down your business. However, you may also find that you’re better off without the burden of chasing payments or taking the hit when a customer doesn’t pay. As a compromise, you could operate a deposit system, where the customer pays you 50% at the start of a service and the other half on completion or delivery.

Budget, budget, budget

Whatever the size of your business, it’s important to have a budget. To create this, you will need to estimate how much money you expect to earn and how much you expect your expenses to be. If you are unsure of where to start, or how to forecast your future finances, it could be worth hiring a financial professional such as an accountant or bookkeeper.

Having a carefully thought-out budget will help you to stay on top of your business expenses, helping to avoid accidental over spending. This will enable you to maximise your profits and avoid falling into debt.

Hire a bookkeeper

The single most effective way to manage your money as a small business owner is to hire a bookkeeper. Whilst most small businesses won’t be able to justify hiring an in-house bookkeeper, many work on a freelance basis, meaning that you can outsource your financial tasks to them without having to take them on permanently.

Hiring a professional to look after your books will ensure that financial records are kept up-to-date, which can be invaluable when it comes to filing your taxes. Furthermore, they will work closely with you to generate financial reports, which can give you the tools as the owner to make long-term decisions around the future of your business.

Outsourcing your bookkeeping will also mean that your time is freed up to deal with what’s really important to your business, whilst you have the reassurance of knowing that your business’ finances are in safe hands.

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