How to Manage Business Finances in the Most Efficient Way

Managing a business and making it successful requires more than just a quality product. Good financial sense and planning are often the foundation of long-term success for your company. Here’s some tips on how to manage business finances in a way that sets you up for success.

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12 Tips on How to Manage Business Finances

Good financial management can be challenging for newer business owners. It can remain a complicated process for longtime business owners, too. The tips below should help you develop a comprehensive financial plan whether you’re a first-time entrepreneur or managing a company is nothing new.

1. Build a Business Budget

Setting an effective budget can be a heavy lift, but it’s integral to the health of your finances. To start, locate your business income in your profit and loss statement, also known as your income statement. Then, make a list of your expected monthly expenses. This list could include your office rent, equipment costs, insurance premiums, marketing services, payroll, and so much more.

After all your expenses are accounted for, compare them to your monthly income. Using that information, you can more accurately eliminate unneeded expenses and maximize profits while minimizing loss.

2. Know What Cash Flow Really Means

Successfully running a business often depends on knowing how much money is coming in and going out. Namely, it means knowing where each dollar came from and where it goes – and whether it’s actually in your pocket or still in accounts receivable. This concept is called cash flow. It explains why you could be low on cash after having sent a ton of invoices. If your clients haven’t yet paid these invoices, you’ll have high revenue but low cash flow. And you can’t spend money you don’t have.

3. Keep Your Balance Sheet Up To Date

A balance sheet is a snapshot of your business’ assets, liabilities, and equity. It tallies everything your company owns (assets) and everything you owe (liability and equity). Keeping these records up to date allows potential investors (and, of course, you) to get a better sense of your business’s financial health.

4. Start Forecasting

Both big and small businesses can run into financial trouble at any point. However, that trouble can feel more impactful for small business owners – you might have fewer resources available to weather the storm. The best way to combat those circumstances is to predict them and adjust your finances accordingly. That process is called financial forecasting.

Proper forecasting can tell you when to cut back on expenses or safely take out a small business loan. Of course, the market is turbulent at even the best of times, so you might want to call in a professional at first. But with practice, you might be able to predict the business environment several years ahead of time and plan accordingly.

5. Pay Yourself

Small business owners often invest all revenue back into their company to help it grow. At the same time,  they might forget that they themselves are essential to the business. Admittedly, taking money away from the company and giving it to yourself may initially seem counterintuitive. In reality, the work you do deserves fair compensation. Plus, building up your business and personal bank accounts simultaneously is good for your morale.

6. Set Aside Funds for Growth Opportunities

Many successful businesses regularly seek growth opportunities to reach a broader portion of the market. These initiatives can earn you more money, but they require lots of money to start in the first place.

For example, you could hire more employees, buy better equipment, and get a bigger office. These steps show your team that things are going great and can motivate them to be more productive. The more they can create, the more you can sell. You could also expand your offerings to suit your customers’ needs – doing so leaves a great impression that could boost your revenue.

7. Consider Small Business Loans

Loans can be scary: What if you can’t repay them? But most of the time, loans are just the financial boost you need. In fact, they’re often integral to a small business's early success. They’re basically quick boosts to your assets that help your business expand or continue paying your employees until you’re in a better financial position.

Several types of business loans exist. SBA 7(a) loans are the gold standard for small businesses. Bank term loans and custom financing can also be helpful. Speak with a small business lending expert to make an informed decision.


8. Develop a Billing Strategy

An obstacle you’ll likely have to overcome while managing your business is deciding how to handle late or nonpayments for services rendered. Constantly making phone calls and resending invoices aren’t always the most effective means of collecting overdue payments. Instead, you could clearly discuss potential costs before starting a project so the client can make a more informed decision.

You could also simply require payment upfront to mitigate the risk of late payments. Or you could offer discounts if the client pays by a certain date well ahead of the due date. No matter what, be sure to keep close tabs on your accounts receivable to make sure your clients aren’t paying so late you end up with little to no cash flow.

9. Maintain Good Business Credit

It can feel nearly impossible to buy commercial real estate and obtain small business funding without good credit. To avoid bad credit, don’t take on more debts and liabilities than your future revenue can cover. At the same time, don’t avoid affordable loans or cut necessary expenses. Instead, try to pay them off as soon as possible to keep your credit from slipping. You should also work to avoid running a balance on your business credit cards, as these balances can substantially affect your score.

10. Pay Your Taxes More Often

Instead of one big payment once your taxes are completed and filed, dividing it into more sizable chunks can be better for your budget. Consider exploring monthly payments so this expense can be properly budgeted. You can also consider making estimated quarterly payments, where you prepay the amount you are likely to owe based on the prior year’s taxes, and any remaining (much smaller) balance comes due afterward.

11. Balance ROI and Expenditures

Chances are you regularly invest in goods and services that can potentially bolster your company’s productivity. Be wary of that habit: Not all of these expenditures will prove worthwhile. That’s why you should go beyond figuring out whether you can afford these expenditures. You should also track them over time to see if they give you a worthwhile return on investment (ROI). Looking for products that cost less money than they earn can help you streamline your cash flow and avoid disastrous overdrafts.

12. Create a Firm Financial Policy

Financial losses can stem from tough market situations, or they can stem from poor financial management. A firm financial policy can help counter the latter. It could also patch up any holes coming from your team. For example, regularly reviewing your financial records could lead you to see that an employee is embezzling funds from you. After you remediate this issue, your financial picture might look much stronger.

Why Is It Important To Properly Manage Business Finances?

It’s important to properly manage business finances since poor financial management can be enough to cause small businesses to fail. It’s really that big of a deal.

Think about the challenges of running a business at any time. A new company might not have much money to spare between startup costs, rent, payroll, and other expenses. A longtime company facing new competition from previously non-existent products might face the same challenge. Every financial situation you find yourself in could theoretically cause you to fall into small business debt. And though some debts, such as small business loans, are healthy, too much debt can lead to bankruptcy.

More specifically, the benefits of smart business finance management can include:

  • The ability to respond proactively to an incoming increase or decrease in market demand. The more money you have in your accounts thanks to your smart finance management, the better you can get through this tough time.
  • An accurate record of your business’s finances. You can use this record to persuade potential investors to fund you. This record also helps you keep your operations in the black.
  • Fewer inefficiencies in your company’s daily operations. A more efficient operation means you’ll spend less on labor costs and have more money to match potential supplier price jumps.
  • Scheduling monthly payments to coincide with positive cash flow. This way, you don’t get stuck overdrafting and having to pay all the fees that come with that. Plus, as payroll goes, incomplete paychecks are one of the easiest ways to get on your team’s bad side.
  • Setting sales goals that support company growth. When you know your financial picture, you can set realistic goals and keep growing. And at the end of the day, growing your business is likely your biggest goal.

No matter where you are in this stage of entrepreneurship, the right loan can help you get there. Contact SmartBiz® to learn more about your small business financing options.

WHAT YOU NEED TO KNOW: The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial processionals for further information.