5 Everyday Money Management Tips for Small Business Owners
Small businesses are the backbone of the Australian economy, with over 2.1 million ventures making up 20% of the national GDP. Furthermore, 45% of the working population is employed in the small business sector which has increased the confidence of professionals in home-grown opportunities. The segment is taking giant strides and has brought a radical change in the industry which has helped several aspiring entrepreneurs to jump into the domain. Consequently, many youngsters and veteran investors are showing interest in businesses for sale in Australia to kick-start their careers.
These established entities prove beneficial in saving time, effort, and money spent in setting up an empire. Additionally, the buyer can start earning from the first day as a loyal customer base is already in place. The new owner can quickly adapt to the work environment and grow the business further. While learning new things every day, they have to encounter a plethora of financial obligations which are significant to the functioning of the business.
To ensure positive cash flow and maintain a healthy bottom-line, it is mandatory to manage the finances in an efficient way. Financial management is a pre-requisite for every organisation so that it stays afloat. If you too want to improve your finances, here are five simple tips that can help you to manage your money in a better way.
1. Keep Your Budget In Mind
Never lose sight of your monthly and annual budget as all the business dealings should take this amount into consideration. The transactions that take place every day should be recorded with the help of a bookkeeper or accounting software to avoid errors. Understand accounting and the inflow and outflow of cash within your organisation. Keep a check whether you are making a profit or facing a deficit and make informed decisions based on the same.
Remember that in the initial few months of the business, money will be scarce and you have to be frugal with the cash. Do not overspend and limit your expenses at each purchase as these can become major setbacks for a small business. Align your goals with the budget and work accordingly. Also, the financial projections should be realistic and clearly defined in the business plan.
2. Keep Your Personal And Business Accounts Separate
The most common mistake that can lead to a financial crisis is using your personal account for business transactions. With two individual accounts, it is easier to segregate the transactions and keep the books in order. This reduces the chances of mixing up tax obligations and business liabilities. Do not use your personal cash to bail out your business troubled with a financial crisis as it will not prove beneficial in the long run.
Do not use your personal credit card to make business payments so that you can have a clear demarcation between your personal and organisational funds. Jumbling things up can make it challenging for you to pay the taxes at the end of the fiscal year. One more thing you need to keep in mind is that the loan amount coming into your business account should not be considered as a receivable. Utilise bookkeeping software that keeps the funding separate from the income because the loan needs to be paid back and should not be counted as earning.
3. Stay On Top Of Negotiations And Collections
You can save a little more by getting a good bargain from suppliers and vendors. Be on the top of your negotiations game and create contracts with pre-defined penalty payment provisions and grace period to keep things under control. You need to follow up for payments as quickly as the end date arrives. Keep reminding them of the same during the grace period and go knocking on their doors if needed to get your money.
It is your right to ask for your money and you should not feel apprehensive about making collections aggressively from fussy vendors and suppliers. Besides following up, you need to be swift with the process of invoicing as well. Create templates for invoices and reminders and send them on the same day when the project is completed.
4. Make Your Payments On Time
The way you are urgently seeking payment from customers, you must show the same determination in making payments on time. The utility bills, loan instalments, credit card bills, etc., should be paid before the deadline to avoid paying the penalty which adds up to the cost and disturbs your monthly budget. You must file your taxes at the end of the financial year before the last date of submission to steer clear of any fine or late fee.
Keep checking for the last dates of the bills and set reminders to prevent forgetting their payment. These small additional costs can turn into a huge amount at the end of the year and put your profitable business in a loss. So meticulously follow the payment procedure.
5. Secure Your Business With Significant Funds
Small businesses need ample funds to keep the business growing especially during the initial few months when the profit margin is on the lower side. If it is a start-up, then you will need a lot more capital until you reach the breakeven point. This capital will get utilised in your own survival, making payments to suppliers, and running the business. The planning for the same should be done before applying for a business loan and an appropriate amount should be secured from the lenders to make your ends meet.
Another critical thing to remember when you are building an organisation from scratch is that don’t go overboard during the nascent stage. Get the equipment and office space on lease instead of buying and do not spend on irrelevant marketing gimmicks that may not be required in the early stages of establishment.
The success of a business is heavily dependent on the money management skills of the owner. If you have the basic understanding of accounting and bookkeeping, then you can make a big difference to the financial status of your organisation. So adhere to the tips mentioned above if you are planning to purchase a business for sale in Australia or launch your own venture in the near future.