Are you an aspiring entrepreneur trying to make ends meet? Most business ventures are successful primarily because of their products or services offering. Yet, entrepreneurs find it challenging to stay in business. It happens due to poor financial management since most business owners lag number-crunching skills. And without proficient financial management skills, surviving in today’s dynamic business landscape is next to impossible.

So, how does one stay on top of all money-related matters? Managing finances isn’t complicated if you have the tools, expertise, and knowledge. Business owners must implement practices that enable transparency in the organization. That means all money coming in and going out of the business should have a track record. It will allow accountants to monitor inflows and outflows and prepare financial statements accordingly.

Further, entrepreneurs can prepare budgets and allocate resources accordingly. It will ensure all departments work within the set targets, closing doors for overspending. If you are new to finance and want to learn the tips and tricks, let us show you the ropes.

Here we have outlined five ways to manage your business finances.

1.  Maintain Accurate Financial Records

Every business, whether big or small, has to maintain financial records. It includes a statement of financial position, income statement, cash flows, profit and loss account, and much more. These records make room for detailed analysis, giving entrepreneurs an insight into the company’s financial standing. Are you wondering where to begin? Bookkeeping is the first step to maintaining records, but before that, you must brush up on your financial knowledge.

You can go through finance-related articles for money management or equip yourself with advanced knowledge with an MBA degree. If you completed an undergrad program, look for an online MBA in finance to learn the finance world’s ins and outs. You will also learn about different financial reporting standards, which help with record keeping. Thus, you can begin by preparing the three formal financial statements.

• Balance Sheet outlines the company’s net worth, including its assets and liabilities. It also shows equity – the amount you will have after selling all assets and paying off liabilities.
• Profit & Loss Statement shows business revenues, expenses, and profitability.
• Cash flow statement gives an insight into money going out and coming into the business, allowing you to track when cash changes hands.

2.  Manage Cashflow Smartly

Despite making profits, some businesses don’t have sufficient cash to incur routine expenses, leading to cash flow problems. Lack of money is also one of the reasons why most companies fail. Therefore, keep a close eye on your cash flow statement to identify large-scale fluctuations. Likewise, keep track of all inflows and outflows to ensure enough cash is always available. However, this is easier said than done. Here are a few tips for managing cash flow.

• Choose appropriate payment terms with customers. If you offer credit sales, give a definite timeline for clearing dues and impose penalties on late payments.
• Be selective with whom you do business and credit-check new prospects. You might spend an entire month fulfilling order for a customer who refuses to pay. Hence, conduct a detailed credit check to close doors for bad debts.
• Negotiate payment terms with your suppliers to reduce out-of-the-pocket expenses. If you allow customers a credit period of 30 days, negotiate the same with your vendors.
• Install an inventory management system to ensure you don’t have cash in stock.

3.  Invest in Growth

Often, business owners get so occupied with routine tasks that they lose sight of the bigger picture – business growth. Therefore, setting aside money and investing in growth opportunities is essential. It will help your business thrive, innovate, and expand. While managing finances, find ways to set money aside for business growth. You can take out 10%-20% of your profits for this purpose. Later, you can invest that money into the business or explore better investment opportunities.

Business owners can purchase stakes in another business, buy financial securities, or open a savings account. All these investment opportunities will open doors to a passive income stream, improving business profitability further. Besides this, you can also consider re-investing your profits into a new product line which could pave the way for business expansion.

4.  Optimize Payroll Process Flows

Payroll processing is one of the core elements of financial management, which requires an immense workforce. How to optimize the entire process? It can be beneficial but needs a complete overhaul. Let us take you step by step.

• Upgrade your payroll software and design a paperless payroll processing software. It will allow you to keep track of all timecards and disburse salaries accordingly.
• Optimization can simplify the entire payroll system. It has different programs for accounting, processing hours, and salary disbursement. Thus, you will have everything in one place, eliminating the chances of error.
• Payroll software will automatically deduct income tax from employees’ salaries, saving you from tax filing and returns hassle.

5.  Build Your Credit Score

Every business resorts to external financing through lines of credit and loans. A business must have a solid credit score to qualify for a loan. How to improve your credit score?

• Pay all business expenses timely because your payment history has a massive impact on your credit score. Your inability to pay bills promptly reflects that you are in a financial crunch.
• Use credit responsibly since a credit score is built as you borrow money and pay it off timely.
• Keep your business credit card’s utilization rate up to 30% to maintain the ideal credit score.

These few tips and tricks will improve your credit score, enabling business owners to acquire loans at a low-interest rate. If you want to check the score, look up the websites of credit agencies like Dun & Bradstreet or Experian.

Final Thoughts

Financial management has always been a topic of concern for business owners. Most entrepreneurs recruit accountants to handle money-related matters, but that is not enough. It is crucial to educate yourself and understand the basics of financial management, like applying for a loan, recording entries in the ledger, etc. It enables owners to comprehend their company’s financial performance and profitability levels. Therefore, implement strategies to manage finances smartly. You can prepare financial statements, improve your credit score, and expand your income stream.