Financial management skills are the one thing that can separate the enduring businesses from those that fade out seemingly overnight. While the idea of financial planning can be overwhelming, it generally consists of small, steady steps over time. 

10 Financial Management Tips for Small Businesses

Whether your company is in year one or year 10, consider implementing these financial management steps for small businesses to promote longevity and success.

Create a Financial Plan

Does your business have a financial plan? In many cases, businesses start with a business plan that includes a financial component. However, this is just a summary compared to a fully developed financial plan. To create a full financial plan, consider the following questions:

• When do I need to expand?
• What can I get by with now?
• Do I require more staff?
• Are any of my resources due for replacement?
• What factors influence my cash flow?
• Do I require additional financing for my goals?

Outlining a financial plan and forecasts can help create a navigation system for your business. This document should guide your efforts when deciding when to spend and when to save. 

Separate Personal and Business Finances

Many entrepreneurs and small business owners struggle to put clearly defined lines between personal and business finances. The most basic step for implementing this separation between them is to create separate bank accounts and credit cards for business expenses.

When you choose to draw a salary, do so by transferring from the business account to your personal account, rather than spending directly with the company card.

It’s worth noting that many business owners fail to pay themselves a consistent salary, making the already challenging occupation of entrepreneurship even more so. Use a profit-based system to pay yourself a consistent salary to promote positive personal and business financial habits.

Borrow Strategically

Borrowing should be intentional and well-planned out. It’s essential to explore all other financing options before you start borrowing, from working with investors to bootstrapping your expansion.

However, seeking additional financing is often a necessity in the world of small business ownership. It stems back to the idea that you have to spend money to make money.

For example, if your company is at its capacity for clients with your current staffing, you won’t be able to take on more business without hiring more staff.

It might take some time for the new staff to manage the overflow and bring that money back into the business. As such, borrowing could be the best option to grow. 

Be sure to weigh all your options when looking at financing. Ideally, you’ll be able to secure a low-interest loan or grant. If you need funds quickly, you can explore an online title loans no store visit option. 

Manage the Company Credit Score

Your financing options will largely depend on your company credit score. Generally speaking, the better your credit score, the better your borrowing options will become. 

Set aside time to review the company credit report on a regular basis. Determine what the areas for improvement are and create a long-term improvement strategy.

Your credit score could be the difference between a manageable, low-impact interest rate and a high-interest rate that cuts into your bottom line.

Track All Expenses

Constant vigilance is crucial when tracking small business expenses. It’s often the smallest expenses that cause the most significant impact at the end of the year. Things such as office supplies and unused subscriptions can add up in a hurry.

Set aside time each month and see what expenses can be improved upon. It’s important to find the balance between being frugal and being cheap when running a business.

Determine which expenses have a sufficient ROI or could be labeled as necessities. Avoid cuts that dampen employee morale and make your job more difficult. 

For example, investing in a platform to automatically publish social media posts may cost a few hundred dollars each year. However, the benefits of consistent marketing with minimal human resources are well worth the cost. 

Re-Invest in the Business

Set aside funds to re-invest in your business. Putting money towards marketing, innovation, skills development, etc., is well worth the expense. Many companies choose to reinvest using a percentage-based system. 

Marketing, for example, could be allocated as 10% of revenue. Thus, as the marketing efforts bring in more business, the marketing spend grows. This strategy promotes sustainable business growth. 

Create a Pivot Plan

If the year 2020 has taught small business owners anything, it’s that you should expect the unexpected. No one could have predicted the impacts the global pandemic would have on small businesses around the world.

These companies found themselves having to overhaul their offerings overnight or close their doors for good.

Take some time to develop a pivot plan for your company – a proverbial survival guide for worst-case scenarios. Outline the top priorities for bill payments and which expenses will get cut first.

Determine how you’ll operate if you experience a lockdown and what communications need to occur in the event of a worst-case scenario.

Many large corporations and government organizations have pivot plans for every disaster you could imagine, from natural disasters destroying buildings to the death of a key leader. They outline the processes and finances required to survive in unprecedented times. 

Combine your pivot plan with an emergency savings fund. The more money you can set aside over time, the better your chances of survival when one of these situations arises.

Prepare for Tax Season All Year

The expression “tax season” is a misnomer. Real tax preparation should happen year-round. In fact, setting aside time each month to ensure your accounting is up-to-date can save all the stress and panic of tax season.

Clarify what your company needs to report, and ensure it’s entered in a timely manner. Implement processes and consider outsourcing to a virtual assistant or bookkeeper to ensure everything is organized and ready to go.

There are also plenty of integrative tools you can use to file receipts, track mileage, and keep your accounting accurate.

Streamline Invoicing

One of the biggest opportunities for improvement in a company is the invoicing process. Consider it this way: the longer it takes for you to send out invoices, the longer it takes to get paid. Delays can have a detrimental impact on your cash flow and company credit score.

Create automated invoicing practices and simple SOPs to follow within your company. Consider adding incentives, such as discounts for early payment or cash.

Learn to Negotiate

Finally, learn how to negotiate with vendors and customers to keep your costs low and profits high. Keep in mind that it’s easier to negotiate when you approach the matter with respect and showcase the value your company offers (a high credit score, for example). 

Remember that timing is everything when negotiating and that it’s a give and take relationship.

Use these financial management tips to set your small business up for long-term success.