A Complete Guide to Good Money Management for a Profitable Business
Involvement and dominance of money at all the crucial stages of your business growth is inevitable. Therefore, you must give prime importance to good money management strategies and use some handy tips. It is imperative for you to have good money management skills as an entrepreneur. You should have all the knowledge about accounts receivable and accounts payable.
“Many folks think they are not good at earning money when what they do not know is how to use it.”
– Frank A. Clark
Time and again many such quotes on money have been given by many successful businessmen. No matter how big or small your business is, sound financial management is at its heart. The way your money moves decides the trajectory of your business. The step by step strategic growth of your business depends on the smooth flow of money. Without good money management, the cash flow dries up and it becomes very tough to dig yourself out of the hole.
Why is Good Money Management Important for A Business?
Money is the lifeblood of your business. So, it is important to keep it flowing unimpeded. Many successful studies done across the globe suggest that one of the topmost reasons most businesses fail is because they don’t have enough money on hand. A good practice of money management in trading makes your business buzz. Once the money flow stops, your business is strangulated. Even when you’re just starting your business, the need for good money management practices is inevitable in the early days for your business to be set up properly. You might need to buy new equipment, pay the rent for your new office space or pay for your website, etc.
10 Useful Money Management Tips
There are many unknown expenses you get to know while starting out at first. That is the reason why you shouldn’t be alarmed if initially, you see more money leave your business than come in. Let us discuss some money management tips:
1. Know Your Worth Well
One of the key money management skills is to be aware of your worth and be upfront about it. You should be straightforward with your clients while communicating the payment contract details to them. Though the money related conversations can get awkward and tricky, you still got to handle them normally. Always remember, when you deliver a service or a product, you deserve to get paid.
2. Have A Business Plan & A Budget
If you are a sensible businessman, you will always have a business plan and you will always create a budget. This is a fail-proof money management strategy. This avoids overspending and grows cash flow at a healthy pace.
Maintain an accurate Income Statement to determine the breakeven point of your business. It will summarize your business revenues and expenses for a period of one year. This will allow you to calculate your net profit and loss. This is also needed in case you need a loan because money lenders always look into your business plan before lending you any money
3. Have a Business Bank Account
Once you have earned a lot of money, it’s better to park it safely. Opening a Business Bank Account is a very well known money management tip as there is always a higher interest rate for a savings account and this cash will come in handy on a rainy day or when you make investments in the future. It is a good practice to keep at least two months of operating expenses in your business savings account. Have a good amount of Cash Reserve. This way you will be able to protect yourself when there is an unexpected dip in the business.
4. Inventory Management
It is sensible to order only that much inventory that you actually need. This is an indispensable money management technique. Don’t order too much inventory only to have it collect dust in the storeroom. You can choose the best Inventory Management Software from amongst the various software available in the market. It is of utmost importance in the entire supply chain management and money management.
5. Disburse Your Money Strategically
Pay your vendors at the right time. As the entrepreneur, you have to manage multiple payments at once viz. suppliers, landlord’s rent, employees’ salaries, credit card bill, utilities’ bill, etc. You may receive a big fat paycheque at once but don’t get tempted to drain all the money from your account at once. A good money management tip is to plan the disbursement of money strategically. Don’t forget to take advantage of the small period discounts, etc.
6. Have A Good Invoicing System
Another very important money management tip is that you should have a proper Invoicing system. Send your invoices on time in order to bring funds faster. Make sure to keep an eye on outstanding receivables. Track your invoices regularly, send reminders to your customers, implement penalties, and embrace stringent measures to collect the payments on time.
7. Ensure Timely Payments
You can ensure getting paid on time by setting payment expectations while closing the deal. You should be affordable for your clients. Just because something seems pricey to you, doesn’t mean it will mean pricey to your customer as well. It’s all about how the customer perceives your services offered and their values. Don’t undersell yourself and never be afraid to charge your worth. Make use of digital ledger apps, if need be, to manage your payments.
8. Evaluate Your Expenditure
Evaluate your expenses in detail. See if you are collecting the money from all the sales right. Make sure there are no futile daily operating expenses which may result in trouble and you will have difficulty in making the ends meet. Take time to analyze all the bills for a period of at least three months. This will help you in figuring out which expenditure is the heaviest financial burden on your business. This will tell you if your utilities are too high. If that is the case, you may want to opt for more energy-saving methods to lower the utility bills.
Keep a tab on your spending habits using various some software available in the market. This is one of the most important money management tip. Tally up your expenditures to keep a check on your cash at hand. This exercise will show you which expenses are necessary and which are unnecessary. This will help you prioritize your expenses in a better fashion and allow you to cut back on the unnecessary ones.
9. Maintain Separate Business and Personal Funds
Mixing both of them may lead to overspending, loss of payments, and mismanagement of business funds. This will lead to missed growth opportunities as well. If you have only one account for both business and personal uses, you will be prone to dig out your business funds for personal expenses and vice-versa.
10. Don’t Fear Failure
There are moments when the prospect of starting a company and taking risks is overwhelming. When you use your fear to propel yourself towards success then you can undoubtedly achieve greater heights. The trick is to manage it because you will feel motivated and empowered to achieve your new dream. Migrate to a positive mindset, embrace the new lessons that failure provides and find comfort in taking big chances. Because, as it is rightly said, “Success isn’t permanent, but fear is not here to stay for long either!”.
Whether your start-up is bootstrapped where you put in your own money or you explore other financing options such as a business loan or a line of credit, you should have good money management skills if you want your business to flourish. Planning early by implementing the money management tips will save you from the heat during those periods when the sale is really low. We sincerely hope out money management tips will come in handy to you!
Did you like these handy tips? If you want more such tips for proper money & business management, please comment down below!