A positive cash flow is one the most important determinants of a successful business, small or large. This is why it is incredibly necessary that a small business prioritizes their financial management to increase their profitability and sustain successful business functioning and operations.
This article will outline some top tips that can help small businesses to stay on top of their finances and ensure a positive cash flow.
Create and Stick to a Budget
In order to set a budget, you must be realistic. This is because the budget is what can help to keep your small business running smoothly during peaks as well as slower periods. It can further help you to prioritize and manage purchases, making savings where necessary in order to stick within the budget.
Justine Gray, co-founder of consumer lending startup-up Dollar Hand, commented that “It is important to remember that your budget should have some leeway so that it can adjust to price changes and inflation”. It is paramount that your small business has some form of an emergency fund to account for any unforeseen expenses that may exceed the typical budget expectations.
Make Use of Accounting Software
Conventional accounting methods may not be the most cost effective method of managing finances, especially for small businesses. It can be incredibly difficult to manually monitor finances, especially ingoings and outgoings, such as invoices and payrolls.
This is where account software can come in to help to manage your small business’ finances. For instance, the software can ensure that all financial records are accurate and regularly updated. The software can further be automated so that you can save money on particular subscriptions and memberships. Accounting software can help to manage finances and help you in the run up to annual tax returns, as the information is all kept up to date in one location. This is also a useful way to save money as a business since a software may be cheaper than hiring a member of staff to fulfill this role.
Do Not Forget About Accounts Receivable
Some small businesses may choose to provide credit to their customers, essentially meaning that their customers do owe them money. As such, it is important for these small businesses to ensure that they are keeping track of the funds that the customers owe them – known as accounts receivable. An efficient way of doing so could include keeping records of each customer’s debt, as well as the specific amount that they owe your small business.
Doing the above will make it easier for your small business to identify any late payments that are expected from customers so that invoices can be sent out quickly and will prevent your business from having debt problems because of awaited late payments.
Ensure That Personal and Business Funds are Kept Separate
It is important to make sure that your personal and business funds are kept in separate accounts. If they are kept together in one single account, then it may be difficult to track where and how much money is being spent towards your small business – which can result in overspending and missed opportunities.
As such, ensuring that your small business has a dedicated company bank account will help to track spending and manage finances. A separate company bank account will also provide access to specific business bank statements too.