Effective financial management ensures that your business continues to function efficiently and make well-informed decisions. Neglecting the financial aspects of your small business can result in missing out on valuable tax deductions, difficulty obtaining loans, and decisions that will cause additional problems later on.

If you want to improve your handling of business money, this guide has major tips to help you organize and grow your business. 

Why Financial Management is Essential For Small Businesses 

No matter how big or small an organization is, financial management keeps it running. It’s even more critical for small businesses to have good financial management because they must be even more careful with their plans and choices. After all, they have less money or resources. When small business owners focus on managing their money, they can: 

  • Fix your cash flow and ensure you have enough cash to run your business. 
  • Based on accurate financial data, you should make intelligent decisions. 
  • Find ways to save money and stop spending money on things that aren’t necessary. 
  • Watch out for and deal with cash risks. 
  • Make sure your finances are stable enough to get investments or loans. 

Tips for Managing Small Business Finances 

As a small business owner, here are some things you should do to keep your money in order. 

1. Separate Personal and Business Finances 

Many people who have just started small businesses use their personal credit cards to pay for business costs and put money from their businesses into their bank accounts. At first, that might be helpful, but it can cause a lot of trouble. 

Open a business bank account to avoid that trouble. You can find one that lets you do as many deals as you want for free and doesn’t charge you a monthly fee. 

2. Give Yourself a Salary 

If you own a small business, you might only pay yourself at the very end or get paid to save money and put more into growing the business. But you must take advantage of the benefits of starting to pay yourself right away, even if it’s only a few hundred dollars a month. One reason is that it helps you save money and pay for things you need. That’s very important in case the business doesn’t work out. 

How you pay yourself depends on your business’s setup, so talk to your lawyer or investigate whether you should take a salary or a draw. 

3. Start With Financial Paperwork

Financial records for a small business can tell you a lot about its financial health. To understand money, you need to know three simple facts. 

A. Balance Sheet 

The balance sheet tells you what your company owns (its assets) and owes (its debts) at a particular time. It also shows your equity, the difference between your assets and debts. This is the amount of money you would have left over if you sold your business’s assets and paid off all its debts. 

B. Profit and Loss Statement 

The income statement, another name for the profit and loss statement, shows how much your business made, how much it spent, and its profit or loss over a certain period, usually a month, quarter, or year. 

Your profit and loss account can help determine which parts of your business are making money. Lenders and investors will also examine your profit and loss account before they decide to lend or invest in you. 

C. Statement of Cash Flow 

The cash flow account shows how much money has been entered and left in your business over time. It can help you determine how much cash you have to pay your bills and grow your business. 

4. Use the Best Methods for Accounting 

One of the first financial choices you need to make when running a business is whether to use cash or accrual accounting. Cash-based accounting measures your business’s cash flow. This sheet shows how much money comes in and goes out. Accrual-based accounting is harder to understand because it tracks income when it’s earned and costs when they occur, regardless of when cash changes hands. 

A. Pick out Accounting Software

Some businesses may be able to handle their small business funds in a notebook or spreadsheet, but accounting software can help you keep better track of your income and spending. Also, your accountant will be happier with clean financial statements for your business than with a box full of papers when it’s time to file your taxes. 

You might only need to hire an accountant part-time. If you want to keep costs low, hire someone to review your do-it-yourself books monthly and give you wise advice. To get help with things like payments, supplies, managing cash flow, and more as your business grows, you can always hire them for more. 

5. Improve the Credit Score of Your Business 

Your business credit score affects everything from getting business loans to contracts and the amount you pay for insurance. That’s why you should check your business credit report often. 

6. Plan and Pay Business Taxes 

The federal government taxes income from a business. How and how much you pay depend on your business’s setup. Set aside a certain amount of your monthly income to pay your expected taxes. 

7. Look into Your Choices for Small Business Loans 

Once you know how much your business makes, you can decide whether you need a small business loan. A loan can help you fix problems with your cash flow, buy essential business tools, and open up new growth possibilities. 

You should be able to qualify if your accounting records are well-organized and your financial accounts are correct and up-to-date. Depending on what the lender wants for a business loan, you may also need: 

  • A plan for a business 
  • Money owed and money owed reports that show how healthy your business’s finances are and how much credit risk it has 
  • Secured loans 
  • You should have copies of your business licence, articles of organization, and any contracts with customers or suppliers. 

8. Take Care of Your Business Score 

As your business grows, you may need to buy more industrial property, get more insurance, and take out more loans to make these things possible. Approving these deals and purchases might be more challenging if your company needs better credit. 

Pay off all your debts immediately to keep your credit score high. On the other hand, don’t leave an amount on your business credit cards for more than a few weeks. Also, don’t borrow money with interest rates you can’t pay back. You should only look for loans you can easily and quickly repay. 

9. Make a Plan 

There will always be things that need to be done today in business, but you need to plan for the future regarding your money. Tina Gosnold, founder of the QuickBooks-only company Set Free Bookkeeping, said, “If you don’t look five to ten years ahead, you are behind the competition.” 

Business Financial Management at Its Core 

Taking care of your small business’s money shouldn’t be an aside. This must be a central part of your business plan if you want it to last past five years, at which half of all UK small businesses fail. If you know the numbers that run your business, you can make better decisions and know when to spend on growth and when to cut costs. 

We help company leaders and single traders whose small business finances have gotten out of hand here at Edgybiz. This could be due to a lack of cash flow, loans, tax bills, or pay that can’t be paid. We can give you a lot of different choices to help your business get out of a bad financial situation and start making money again. We can also help you determine the best way to end things for you and your business by explaining the official and casual ways to go bankrupt.