written by khatabook | July 23, 2020

10 Money Management Strategies To Successfully Manage Your Business

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Table of Content


Managing money in your business is an important key business consideration after all your business needs money to efficiently conduct day to day operations. For a small business, a substantial part of their money is invested in inventory or blocked by debtors.

Did You Know? The Reserve Bank of India, holds a certain percentage of liquid assets for paper currency in circulation. So, If your currency note tears then visit the nearest RBI counter and you can exchange the currency for brand new one.

Overview on Money Management

Money management aims to focus on how you handle all of your finances, from budgeting to investing, to saving and setting goals. With good personal finance management, you'll also learn to control your money so you can achieve your financial goals.

Also Read: Tips to Become a Successful Businessman

Tips for Successful Money Management

There can be end number tips to manage the money in your business. However, In this article, we will understand the most important and scientifically proven ways for money management:

1. Cash Flow Statement

A Cash Flow Statement is one of the most widely used techniques to analyze the cash flows within and outside the entity. 

The Statement is divided into 3 major sections:

  1. Cash Flow from Operating Activities
  2. Cash Flow from Investing Activities 
  3. Cash Flow from Financing Activities

The Cash Flow Statement shows the inflow and outflow of cash from these three sources. You can analyse the areas where there is efficient cash management and your business is not managing cash efficiently. You will analyze that inventory and debtors are the most ineffective accounts for cash collection. 

2. Reduce the Operating Cycle of Your Business

Operating Cycle refers to the period it takes to realize cash from the raw material used in production. It includes the period of material procurement to its realization in cash from the debtor accounts. A shorter operating cycle is always beneficial for a business as it increases the cash flow within the entity. It is also important to note that a shorter operating cycle means more complete operating cycles within a year resulting in more bottom-line profit as the cash can be reinvested again and again to build on profits. To shorten the operating cycle, discover efficient ways of debtor collection.

3. Stick to Cash Budgets

Budgets are yet another tool to establish a benchmark through which the performance of any activity can be measured. It ensures a system of control for any process within the entity. Cash Budgets are no different. They also establish a set limit of cash above, which is considered over-expensed. Cash Budgets ensure that cash is effectively managed within the entity and that expense does not overstress the available cash, which would otherwise be made available for other productive usages.

4. Manage your Debt Obligations

If your business is over-stressed with debt obligations, it is more likely that you will sooner or later run out of cash. Banks have the policy to charge compounded interest rates on most of their loans. So, if you default on your debt obligations, you will likely end up paying more than what you had been required to pay. Thus, Pay your loan installments on time to avoid any extra penalty. This way, you could save money on your business.

5. Cut Costs

Spend time on analytics generated by your ERP system and try to figure out the bottleneck process that is badly affecting other processes and remove them from your entity. Similarly, you can cut costs in your production activities. However, a scientific way to cut down the cost of your business is to understand your customer's journey in the value chain.

For example - when you shop on amazon, you open the app on your device or website and log in to your account. Then, you will search for a particular product you want to buy. Then, add it to your cart, and will make the payment. After that, you track your order and finally receive the product within the expected delivery time.  

From the above example, you can identify the value chain of customers as  

  • Login page
  • Amazon app or website
  • User Experience
  • Payment Merchant
  • Logistics

There is the core process of Amazon that concerns the user the most. As a business owner, you should identify these additional activities and try to cut costs in them as they do not provide direct value to the customer.

Also Read: Top Small Business Ideas to Make You a Successful Entrepreneur

6. Time is Money

A resource has a value that a customer is willing to pay. Similarly, Time is a limited resource for any human being on earth. Thus, Invest your important time into the most productive use to make the best of it. Similarly, your business has a limited time to build on an opportunity in the market until and unless others can grab them. Analyze those opportunities and act on them prudently.

7. Avoid Idle Cash Situation

When money is not in use people lose the opportunity to invest in other productive usages. An old saying is that Money makes money and idle cash in your business should be reinvested. If your business is unsure about an expansion plan, Invest the idle cash into the current operations and strengthen it to earn the best returns.

8. Invest in Marketable Securities

Efficient Money management does not mean that you should hold less cash or bank balance than required in day-to-day operations. Similarly, you as a business owner can invest the idle cash which does not need immediate flexible deposits with Scheduled Banks, or invest in government bonds to earn a return on them. When you need cash, withdraw them.

9. Manage Inventory

Inventory is one of the most substantial portions of the investment for manufacturing concerns. Managing inventory could be one of the important steps to managing money in your business. Thus, Establish a robust inventory management system to realize cash from inventory easily.

10. Establish Emergency Fund

Emergency funds are very well required in situations when your business may run out of cash. It does mean that your Company is run out of business. Still, there will be situations when an unexpectedly large amount of expenses will be incurred in your business for which you have no contingency funds. Thus, having an emergency fund will save you from unexpected financial stress. 

Also Read: Unique Business Ideas With Low Investments

Conclusion

Money is the biggest asset for your business operations. If you do not re-invest money into your operation, it will badly affect your profitability. Money management revolves around tracking expenses, investing, budgeting, banking and assessing tax liabilities. It can be considered as a strategic method for delivering the highest interest-output value for any amount spent on making money. 
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FAQs

Q: What do big organisations do for Money Management?

Ans:

Big corporations like Reliance Industries Ltd. invest a portion of their idle liquid cash into debt marketable securities to earn a return on them.

Q: What are the best ways of managing money?

Ans:

The best ways of managing money are as follows:

  1. Track the expenditure for better finance
  2. Create realistic budget
  3. Build the savings even when it take time
  4. Pay bill each time
  5. Cut back on recurring charge
  6. Save cash for big purchase
  7. Start better strategies.

Q: Why should you manage money in your Business?

Ans:

Managing money in your business is an important key business consideration. After all, your business needs money to efficiently conduct day-to-day operations. For a small Business, A substantial part of their money is invested in inventory or blocked by debtors. Unless you reinvest money in your business, your operation level will shrink. 

Thus, Managing money for business is a matter of survival for business. An efficient money management system will also ensure that the business is liquid and solvent to meet its current and future obligations. Apart from it, It checks on employees' morale and whether they are indulged in any petty theft of cash.

Q: What are the various tips for Successful money management?

Ans:

Following are the top 10 tips for successful money management 

  1. Analyze the Cash Flow Statement of the business to understand the areas of poor cash management
  2. Reduce the Operating Cycle of Your Business
  3. Stick on Cash Budgets
  4. Manage your Debt Obligations
  5. Cut Costs from the non-productive areas
  6. Always remember Time is Money
  7. Avoid Idle Cash Situation in your business
  8. Manage Inventory Efficiently
  9. Establish Emergency Fund for contingencies

Q: What is Included in Cash and Cash Equivalents of the Balance Sheet?

Ans:

Following are the items that are included in the cash and cash equivalents of the Balance Sheet Cash in hand

  1. Cash at Bank
  2. Marketable securities like shares and Bonds
  3. Deposits are expected to be realised within 90 days from the reporting date.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.