Small Business Money Management: 8 Tips Owners Should Know

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Besides marketing and providing high-quality products and services, solid financial planning and management are crucial for various aspects of your business—inventory acquisition, utility bills, employee salaries, and more. Without excellent finances, smooth operations are nearly impossible. 

As such, you must ensure your business finances are in order. Here are small business finance tips to help you effectively manage your business’s financial health.

8 Small Business Money Management Tips

1. Learn the primary risks

As a business owner, understanding the risks that can affect your business’s health falls on your shoulder. Risk management is a fundamental discipline that involves identifying, assessing, and mitigating potential risks to secure financial stability for your organization. 

In this regard, knowing the five basic risks is essential: market, operational, compliance, reputational, and financial. Although daunting, you can take steps to mitigate these risks. For example, monitoring small business market trends lets you plan effective risk mitigation strategies.

2. Plan for and pay business taxes

Filing taxes is an essential aspect of business money management. Otherwise, you might face legal issues. When you properly plan and pay your business taxes on time, you demonstrate good faith and compliance with tax laws and authorities. 

This small business money management tip also lets you leverage deductions and credits. For instance, you can reduce your business’s taxable income and lower your tax bill. As a result, your company gains significant savings to reinvest into your business and support its growth.

Consider working with a professional to keep accurate records of your business expenses. By implementing this strategy, you can identify and claim all eligible deductions and credits. Plus, you can prevent your company from paying fees and penalties while maximizing tax savings.

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3. Pay yourself first

You are entitled to compensation for running the business. Consider it your reward for your efforts and contributions, motivating yourself to continue reaching your goals. This small business finance tip should come before allocating funds for other business expenses.

Aside from the motivation it gives, separating your salary from your profits offers a consistent and reliable source of income. It allows you to address personal financial obligations without dipping into your company’s earnings. Consequently, you don’t have to worry about your finances getting in the way of your business.

4. Build your business credit score

Your credit score represents your capacity to pay your bills and loans on time. Lenders, suppliers, and other financial institutions use this information to assess the risks of lending money or extending credit to your business. 

For this reason, keeping a good credit score should be part of your money management strategy. Then, you can explore various financing options, such as loans, lines of credit, or business credit cards. Regardless of your goal—bridge cash flow gaps, invest in growth opportunities, or manage unexpected expenses—you must tick a well-maintained business credit score off the box.

Plus, maintaining an excellent business credit score encourages suppliers to create better payment terms or discounts. The result is low inventory costs and high profits. Customers and other companies may also see your business as financially stable and reliable, leading to increased sales and partnership opportunities.

5. Monitor your cash flow

Keeping a close eye on your cash flow is an essential small business money management tip for a financially healthy company.

Cash flow monitoring involves tracking and analyzing what goes in and out of your business, from revenues and expenses to investments and loans. The goal is to have valuable insights into your business’s financial health for more informed decision-making. Then, you can take proactive steps to ensure financial stability.

For example, accurate cash flow records can help you identify potential gaps and shortfalls. This information lets you take corrective action, such as expenditure adjustments, initiatives to increase sales, or new financing options to avoid financial stress. 

You can also determine profitable areas of your business to optimize cash utilization and allocate resources wisely, effectively boosting financial performance.

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6. Make financial projections

Financial projections are valuable for any organization, especially for small ones. This practice provides a roadmap for sound financial planning and decision-making about business performance.

Here, you must look into your company’s revenue, expenses, profits, and cash flow to understand its financial standing. Part of financial forecasting also includes analyzing historical data, market trends, and other relevant factors.

Altogether, these details can help you plan for future growth opportunities. For example, you may have a unique business idea in mind. Researching market trends, expected expenses, and potential profits will enable you to see how well that idea will fare.

You could also tap into your financial projections to secure funds from lenders and investors. Well-prepared and realistic projections can demonstrate your business’s economic viability and growth potential, increasing your chances for approved funding. 

7. Separate your personal and business bank accounts

This small business finance tip entails setting up a company account to maintain clear financial records and make relevant processes (like financial projections and compliance) easier. When you use separate accounts, you don’t have to spend unnecessary resources determining which expense is personal or business. 

Such a technique can also boost your professional image. It shows you how to operate a legitimate business entity, enabling you to attract customers and open doors for growth and success.

8. Set up an emergency fund

An emergency fund is crucial as it protects your business from unexpected financial challenges. This dedicated savings account or small business emergency fund can cover unforeseen expenses.

Take equipment repairs, for example. Well-maintained equipment can make for smooth daily operations, but poorly handled ones can break down and cause disruptions that might affect customer satisfaction and your business’s bottom line. In the latter scenario, an emergency fund lets you address the problem immediately and prevent process delays.

Likewise, emergency funds are a safety net, providing financial stability and peace of mind in times of crisis. They let you keep up with the changing business landscape without incurring credit or loans that can further strain your company’s financial health.

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How to Set Up a Small Business Emergency Fund

Since an emergency fund enables you to overcome unexpected financial challenges, setting up an emergency fund for your small business is a must-do.

1. Determine how much you need

A well-defined target helps you establish savings efficiently to ensure adequate funds when unforeseen financial issues arise.

Start by calculating three to six months’ worth of operational expenses. Then, account for fixed and variable costs, revenue streams, industry volatility, and financial goals. These steps are vital for setting realistic business goals.

2. Find a secure place for safekeeping

Your emergency fund must be accessible when needed but safe enough to prevent misuse. While using the same account for your business is possible, you may unintentionally use the funds for daily operational expenses. Consider setting up a separate bank account instead for your small business emergency fund. 

You can put your emergency fund in a regular savings account in its early stages, then invest some of it into a money market account to get a higher return. Keep your business savings account sufficiently funded for quick access in case of emergencies.

3. Start depositing

Money won’t just come into your small business emergency fund. You have to make it a habit to deposit a portion of your profits regularly. This step ensures there’s always cash in your emergency fund to cover unexpected costs. Set aside 10%–15% of your average monthly profits and let your emergency fund steadily grow.

Building a Strong Financial Foundation

Sound financial management can help you fund your business requirements for worry-free operations. With the right small business money management tips, you can secure financial stability and bring your organization to the top.

When funding your small business, check out Asialink Finance Corporation. We offer online loans in the Philippines to help enable your organization’s activities and open doors for growth opportunities. 

Apply now and boost your business’s financial performance today.

Gab Doromal