Management

15 Personal Finance Tips for Small Business Owners

Techniques successful business people use to stay on top of their finances.

Updated on

January 31, 2020

Business finance — Keep track of all your money movements. PHOTO | CK

Handling personal and company finances can be a challenge for many small business owners. This is unfortunate considering that the stability of any business mainly depends on its financial health.

Business owners must therefore acquaint themselves with the basic skills needed to profitably run a small business– including simple accounting tasks, preparing financial statements, applying for a loan, etc.

But even for those who understand the basics, there are a few techniques that successful business people use to stay on top of their finances.

Here are 15 helpful finance tips to manage money in a small business.

1. Separate personal and business cash

Separating personal and business bank accounts is easily the ultimate finance tip for small businesses. This action affords you easier bookkeeping at the end of the financial year for tax filing purposes. It also prevents situations where a business suffers cash flow problems caused by withdrawals for personal spending.

2. Pay yourself

It is tempting to put all the revenues into the day-to-day operations of your business. After all, injecting more capital can go a long way in expanding the business.

However, small business owners should not overlook their duties in the company and should reward themselves accordingly.

3. Monitor your cash movements

Managing a business, no matter how small requires you to keep track of all your money movements. You need to take into account both the financial and legal side of your monetary dealings and trace all the movements of your cash regularly.

This will help you to figure out areas that perform most proficiently and those that require some tight optimisation of financial transactions. The data can also help you prepare a realistic budget and track the progress of your business.

4. Keep fixed costs low

Keeping your fixed costs as low as possible is one of the most overlooked personal finance tips for small businesses. Expenses such as rent, salaries, taxes, cost of goods, loan repayment, and other operating costs should be planned a year.

This will help in ensuring that your cash flow position remains strong even during the tightest months of the year. Even as you cut your costs, always focus on the return on investment (ROI) that comes with each of your expenses.

By doing so, you will avoid spending your cash on items that do not pay off, while avoiding starving your cash cow. If something is not paying off, just cut back and deploy the money on initiatives that work for your business.

5. Invest in technology

Take time to learn how to manage money in a small business. Seek to understand all the terms related to your trade to maintain the first position in your market.

One of the easiest ways to keep track of your finances is to invest in bookkeeping software. This software, available online and offline, can be used for paying taxes and for examining the financial position of your business.

As your business expands, you can always hire an accountant to help you with all your bookkeeping using professional accounting software.

6. Avoid expensive loans

Small businesses are often considered as risky borrowers and it is common for banks to lend such businesses at higher interest rates to cover the risk. It is advisable to optimise the little funds at your disposal instead of turning to banks for costly loans.

7. Reduce your debts

Making debt reduction a priority is one of the greatest tips for managing small business finances. Bad debts are not only stressful but they can damage your credit rating – making you struggle to meet your financial obligations. Write them off in the next year to maintain a strong financial position.

8. Invest in growth

All monies that are not to be used in the next few months should be kept in interest-earning accounts. This will help your business flourish and move in a healthy financial direction. Always keep an eye on the future.

9. Create an emergency fund

Businesses do not make consistent sales month on month. It is important to create a fund from which you can draw money to meet your financial obligations during the tight months. The trick is to create a proportion of income in months of high sales that would help to settle bills in the slow months.

10. Create a good billing policy

Some customers are so problematic when it comes to payments. The danger of such clients is that they tie up capital in unpaid invoices, causing cash flow problems.

It is advisable to get creative when billing problematic customers. Change the payment terms to, for example, ‘3/7 Net 30.’ This means if the customers settle the invoice within seven days they receive a 3 per cent discount. If not, the terms are full payment due in 30 days.

11. Negotiate with sellers

Always negotiate with sellers before signing any contract and ask for a good deal. In addition, examine purchase terms such as grace periods and late payment penalties. Sometimes a grace period of 30 days can save you more than a 5 per cent discount.

12. Review your books

It is important to set aside a few minutes daily or weekly to review your accounts even if you have hired a bookkeeper. This will allow you to become familiar with the finances of your business while providing the chance to identify potential financial crimes.

13. Spread out tax payments

Sometimes it gets hard to make a lump sum quarterly payment of taxes. To avoid the stress, plan to make your tax payments a monthly expense. This way, you can treat your taxes like any other monthly operating expenses.

14. Lease business equipment

As a small business, it can be financially challenging to acquire equipment. This challenge can be overcome by renting tools – a decision that allows you to operate without tying up your capital on equipment. The cash saved can be deployed into other areas of your business.

15. Establish financial controls

Setting up internal financial controls, even blocking an hour weekly to review your books, can go a long way in guarding the financial health of your business. Weak internal controls can lead to employee fraud, which can get you into legal problems.