Basic Financial Management For Small Business
As a small business owner, it's important to have a handle on your finances. That’s why basic financial management for small business skills are vital when you own your own business. You don’t need to be an accountant in your business but you do need those high level financial skills that will help you be the best CEO of your business.
Not only do you need to keep track of your income and expenses, but you also need to be proactive in planning for your financial future. Financial management isn’t just about the bookkeeping or tax returns for your business – it goes so much deeper than that.
I always encourage business owners to get to know their business numbers so that you can make smart and profitable decisions for your business on a daily basis.
The problem for small business owners is that you think your accountant would tell you any financial information that you need to know, but that isn’t the case. Your accountant does what you engaged and agreed (more like paid) them to do, which is usually just completing the tax return.
When you know the difference between profit and revenue and how your business creates profit, this offers you financial empowerment in your business. The days of financial stress will be behind you and you will have a renewed sense of confidence as a business owner.
Every business owner needs to be cash confident, and basic financial management for small business will allow that cash confidence to shine through.
There are three key elements to financial management and to be aware of these three key elements will help you in your business. They are: financial planning, financial decision-making, and financial control.
Financial planning
Basic financial management for small business owners starts with creating a budget and tracking expenses. This helps to determine where money is being spent and identify areas where costs can be reduced.
I love to create a business financial plan with my clients, which is not only assessing where the business is currently, but it builds out a 12-month plan to where you want your business to go in the following 12 months. The business financial plan optimizes profit, and that profit can then be reinvested in the business to work towards achieving financial goals.
Setting financial goals is an important step in the planning process. Goals should be realistic and achievable, and they should be specific enough that it is possible to measure progress. Once goals have been set, a plan can be created to achieve them.
Your business financial plan should detail the steps that need to be taken and the resources that will be required. It is also important to set a deadline for achieving the goal. Financial planning is an ongoing process, and as circumstances change, goals may need to be revised and new plans created.
When you take the time to set up basic financial management skills for your small business and establish a solid financial foundation, you can put your business in a strong position to weather any storms that come their way, such as recessions and economic downturns.
Financial decision-making
Basic financial management for small business involves making sound decisions about how to allocate resources to achieve specific financial goals. The goal of financial management is to ensure that a company has the resources it needs to operate efficiently and effectively. Financial management involves planning (refer back to the business financial plan).
To make good financial decisions, you must have a clear understanding of your business’s financial situation. This includes knowing how much money the company has on hand, what its short-term and long-term obligations are, and what its expected income and expenses are. With this information, you can make informed decisions about where to allocate resources.
Basic financial management also involves creating and maintaining financial records. When your financial records are accurate and timely it helps you track the company's progress towards its goals and identify areas where improvements can be made. By reading timely and accurate financial reports it also helps you make informed business decisions based off the financial information you are receiving.
By taking these steps, businesses can ensure that they are making the best possible use of their resources and making sound financial decisions that will help them achieve their goals.
Financial control
Basic financial management for small business is vital for the success and survival of your company. Without proper financial management, your business may quickly become insolvent. There are several key aspects to financial management, but one of the most important is controlling your finances.
Controlling your finances involves monitoring and measuring progress towards the financial goals that you have set for your business. Financial monitoring involves measuring your progress against your business financial plan and taking corrective action when necessary.
By carefully tracking your income and expenses, you can ensure that your business remains healthy and solvent. Through monitoring and controlling your cash flow, you can avoid any financial surprises that could jeopardize the future of your business. With careful financial management and financial control, you can keep your business on track for long-term success.
That was a basic overview of the three main categories that impact the basic financial management of your small business. It can feel overwhelming to look at holistically, so let’s break down some steps that will help you manage your small business finances.
Here are some steps to help build basic financial management skills for your small business finances:
1. Keep track of your income and expenses
This may seem like a no-brainer, but it's important to keep track of both your income and your expenses. This will help you stay on top of your cash flow and ensure that your business is profitable. I also advise you to keep separate bank accounts for your personal and business finances.
2. Have a budget
A budget is a crucial tool for any business, small or large. It allows you to track your income and expenses, set financial goals, and make informed decisions about where to allocate your resources. Without a budget, it's easy to overspend and find yourself in financial trouble.
3. Invest in accounting software
If you don't already have accounting software for your small business, now is the time to invest in it. Accounting software can save you a lot of time and headaches by tracking your income and expenses for you. There are many different options available, so be sure to do some research to find the one that best suits your needs.
4. Stay on top of your invoices
One thing that can quickly get a small business into financial trouble is not staying on top of its invoices. Make sure that you send out invoices promptly and follow up with customers who haven't paid within a reasonable timeframe. Delayed payments can put a strain on your cash flow, so it's important to be proactive about collecting payment from customers.
5. Seek professional advice when needed
There are times when it's helpful to seek professional advice from an accountant or other financial advisor. If you're unsure about how to handle your small business finances, don't hesitate to reach out for help. A professional can offer valuable insights and guidance that can help you get on the right track financially.
Above all, I encourage you to check in with your money mindset. Money mindset is by large a basic financial management skill for small business owners and is often overlooked. We get caught up in the logistics of how to manage money, but the truth is, if your mind isn’t in the game, the money will not follow.
Everyone has a money story, and if you are letting a negative money story holding you back from being the best business owner, and wealthiest business owner that you can be, you’re only hurting yourself.
The bottom line is many feel intimidated by money management, and rightfully so. You likely had nobody teaching you how to manage the money in your business. You may have taken some introductory accounting classes that would have taught you the basics of bookkeeping, not money management.
Once you get into good money management practices in your business you will see it’s not that hard. You just need to know what you need to know.
If you want to work with me to optimize the profit in your business grab your free copy of the 5-Step Roadmap to a Profitable Biz. I look forward to seeing you in my community!
