Putting up a business typically involves complex financial processes—the kind that can be overwhelming for anyone who’s new to the field. To avoid getting into monetary troubles, it’s important that owners get all their finances ironed out right from the start.
This is especially necessary for SMEs (small and medium-sized enterprises) that need to find sufficient funding to cover their initial expenses.
SME Cash Flow: How to Manage Your Finances
As a small business, you’ll need all the finance tips that you can get to ensure that your expenses and payments are all in line with your plans.
Listed below are 6 tips that can help you stay on top of your finances:
- Keep Initial Expenses to a Minimum
Expenses refer to any cash that flows out of your account. During the initial phases of building your SME, it’s essential to minimize your expenses as much as possible.
One of the best ways to do this is to plan everything way beforehand, especially if your business involves office rent on top of taxes and other operating expenses. This will ensure that your cash flow stays stable and that you only spend your business’ money on actual necessities.
- Go Over Your Finance Options
Financing small businesses typically involve credit cards or business-related loans. Credit cards seem to be a good option for short-term financing as it allows businesses to repay their credit in installments.
Because this card will be specifically used for various business transactions, it’s important that you consider applying for a card with more flexible repayment terms. This way, you’ll have more control over your cash flow, which helps you avoid dealing with debt.
On the other hand, business loans are generally recommended for big purchases—the kind that can be realistically paid back in years.
- Separate Personal and Business Finances
When you’ve gotten down your financial options, make sure that you create business accounts to serve as the record of all your future transactions. As things progress with your business, you’ll quickly realize that you don’t want your personal finances to get mixed up with your business ones.
That said, it makes sense that you apply a separate credit card for your business. Your regular big purchases in your business may make you think that it’s worth using your personal card for the points. However, business credit cards actually have more perks to offer.
Business credit cards come with various rewards systems; it’s up to you to decide which of them will be the most beneficial. Oftentimes, these cards provide the option to adapt to your business’ needs as it grows.
- Invest in Reliable Software
Cash flow can be difficult to monitor if there are no proper records that you can conveniently look into whenever you need it. Thus, it’s important that you invest in reliable business software to make it easy for yourself, or your accountants, to record your spending and send out employee payments.
Using good software doesn’t only help you with expenses, payments, and taxes. It also helps you develop better budgets and justify them to your employees or colleagues.
Accounting software isn’t the only thing that can help you with your finances, though. Your workflow will also significantly improve if you use software that’ll boost everyone’s productivity at work.
While it may not directly increase your sales, it’ll make your workforce more efficient. As a result, the turnover of your tasks will be a lot faster, which paves the way for more income for the whole company.
- Reduce Your Debts
Oftentimes, loans and credits are essential to get your business up and running. But, make sure that these are “good debts”—ones that are vital to keeping your company alive.
Otherwise, incurring bad debts on a regular basis will not only affect your credit score negatively, but it may also cripple your cash flow to the point that you’re not turning in any decent profit.
- Build a Business Emergency Fund
You may have heard about the importance of building a personal emergency fund. This advice works well even in business settings. This is especially helpful if your sales aren’t consistent from month to month.
An emergency fund ensures that you’ll be able to cover expenses even in your down months.
Financial Preparedness is the Key to Thriving as an SME
If you wish to thrive in your chosen market, having your finances covered in all phases of the business is incredibly important. Make sure that you create proper financial plans for every business transaction that you plan to take. This ensures that you’ll be able to take care of payments and expenses without incurring any bad debts.