Finances within a small business can be tricky and far from why you went into business for yourself. It feels like an alien landscape unless you’re an accountant or a bookkeeper. We have some money management tips to help you navigate.
A business owner once told me he’d had the best sales month in years. He said he was over the moon until he logged into his bank account and realised what all the increased sales meant.
He was skint…
It all looked good on paper and in theory. He’d had bumper month after bumper month, but his cash flow had deteriorated to the point where he was seriously concerned about how he could pay his bills.
This guy hadn’t been keeping an eye on the numbers and had continued to let long-standing customers pay late and on terms that might have been acceptable in the past but that should have been revisited as the business grew.
The cash flow gap was just too vast.
Your cash flow gap is the period between when you pay for stock, services, or other costs associated with making a sale and the date you get paid for that sale.
You won’t stay in business if you ignore your cash flow. You’ll have problems paying your suppliers and find yourself digging into your personal savings or borrowing money to stay afloat.
With that said, here are six money management tips if you’re running your own business:
1. The First Business Money Management Tip – Separate Business Money from Personal Money
You are not your business. Your business should be treated as an entity of its own, and the money should not mix.
I once heard of someone who took out loans from her savings account and repaid them with interest. That’s how you should treat your business—like a completely separate entity.
The problem is that when you mix the two, you may end up overspending and having disorganised records.
Moreover, it makes it hard to track where exactly your money is going. You might end up using your business funds for something personal or vice versa.
Many banks won’t be comfortable lending money unless you have a separate business account.
Lastly, separating the two accounts can be a liability and help protect your assets in the event of legal action.
How do you separate the money?
Have Separate Bank Accounts
To truly differentiate business and personal money, you’ll need separate accounts. Know where your business money goes in and out. This will help you get organised in tracking profitability, reconciling your books, and monitoring spending.
Separate Receipts
If you’re trying to reconcile every shilling spent on your business and personal finances, separate your receipts.
This will help you account for each overhead expense in your business, and then you can plan accordingly.
Pay Yourself a Salary
This one is really important. Don’t just dip into your business money when you need to buy something. Pay yourself a strict salary based on your margins. This salary is what goes into your personal bank account(s). Make it structured and realistic.
This helps you resist the urge to hive off business finances if you need to spend on something.
2. The Second Business Money Management Tip – Stay on top of Deadlines
How many times have you been super excited about the amount of money coming into your account, only to realise you’ve got a ton of bills to pay?
And once you pay all of them, you’re left with almost nothing…
This tends to happen when you don’t pay your bills on time. They pile up and then dent your pockets all at once.
Not to mention, failing to know when bills are due can result in late fees or added interest, lower business credit, and sour lender and vendor relationships.
Here are two ways to do so:
Set Reminders
If you’re anything like me, it may be easy for things to slip off your mind. When it comes to bills, it costs you when you pass the deadline. How do you deal with this? You can set reminders on your phone, computer… or even as sticky notes on your fridge.
That way, you’ll get onto a consistent payment schedule.
Consider Standing Orders
The other alternative is to have regular standing orders where possible, so the payments go out directly.
A standing order is an instruction a bank account holder gives to their bank to pay a set amount at regular intervals.
They will keep you disciplined and ensure you stay on top of paying off the business’s bills.
3. The Third Business Money Management Tip – Create a Budget
Operating without a budget is dangerous. It gives you a false impression of where you stand as a business.
If you don’t plan out where your money is going to the last penny, you may land in a lot of trouble.
It helps you to see and understand how your business is performing and to make necessary adjustments.
With a budget, you can calculate the inflows and outflows, including overheads, marketing, and staffing expenses.
A budget is helpful for two reasons:
You Can Plan for the Future
A budget gives you a financial forecast of the future. That way, it’s easier to make plans. For example, if there’s a major project you’ve been meaning to undertake, having a budget can help you foresee your savings in a given period and start actively planning towards it.
You Can Set Goals
When you have a budget, you can easily set goals for your business. You can monitor your growth and brainstorm ways to increase that growth. It’s also crucial to review this regularly and ensure you stay on track. Make reviewing your financials a feature in your default diary so that it’s part of your routine.
Download a PDF to help you create a default diary
If your revenue is lower than budgeted, you can find ways to cut expenses and increase income.
But without a budget, everything remains abstract, and you can easily be hit with unexpected shocks.
4. The Fourth Business Money Management Tip – Cut Costs and Increase Revenue
If I were to do a survey, I’d bet you that nearly every business owner dreams of making more money.
And there’s only one way to do that – cut costs and increase your revenue.
Cut Costs
To reduce costs, you must have a clear picture of what they look like. This is where your budget will come in handy.
Where is the bulk of your money going?
A good friend of mine likes to keep all their receipts intact, both electronic and physical copies. At the end of the month, they bring together the receipts and analyse them one by one.
It’s an awful lot of work, but it’s a great way to track your expenditure. You can then analyse and see where you could cut down by a margin.
Increase Your Revenue
You may want to be more aggressive in your marketing to increase your revenue. Read about affordable marketing strategies in our blog, Marketing on a Budget.
You can also offer discounts, add new products to sell, and develop referral strategies.
The bottom line is that it all starts with analysing your cash inflows and outflows down to the penny.
5. The Fifth Business Money Management Tip – Develop Some Tax-saving Strategies
We spend a lot of money on taxes. While these can be useful, and I am happy that we pay tax, we’d all want to pay less, save more, and not pay tax you’re not liable for.
There are so many legal ways to do this as a business owner:
Meet Tax Deadlines
Firstly, by simply meeting all your tax deadlines. You can also claim research and development tax relief or a work-from-home allowance.
You can claim relief for many things – subscription and training costs, business mileage, pension contributions, and capital allowances on property.
Get Expert Advice
I’m not an expert and can’t give you expert advice.
What I can advise, though, is that it is worth the investment to get personal advice from a tax expert, as every business owner has a unique situation. Your neighbour’s or friend’s tax strategy may be good for them but not the same for you.
We also find using a bank account similar to Starling or Monzo, where you can move a regular amount of money into a separate ‘pot’ for your tax bill, or other savings, means that when the bill arrives it’s not a shock to your bank balance.
6. The Sixth Business Money Management Tip – Consult Finance Professionals
Do not shy away from consulting finance gurus on increasing profitability and scaling up your business.
It may be an investment, but it will make you much more money.
More often than not, these finance gurus have experienced many of the issues we frequently face and are in a better-suited position to give impartial advice.
You can never exhaust your knowledge regarding money matters, and you must seek advice from the right people lest you get into trouble.
Whatever the case, you should make money work for you instead of working for money.
Business Money Management Tips – Our Summary
In conclusion, if you want to increase your revenue, it starts with healthy money management practices.
And even with all this money talk, I hope you remember that succeeding in business is not just about making money.
Nevertheless, here are the six money management tips:
- Separate business money from personal money
- Stay on top of deadlines
- Create a budget
- Cut costs and increase revenue
- Develop some tax-saving strategies
- Consult finance professionals
My question for you this week is: Do you know what your cash gap is?
If you could use some support in growing your business, get in touch. At Outside Ideas, we’re on a mission to help people and businesses grow.
What are your top money management tips? Leave a comment…
Onwards and upwards, my friend.
X P