6 Business Money Management Tips

Money Management in a small business can be tricky, and you need tips to navigate it.

 It tends to not be the reason you’ve gone into business for yourself, unless you’re an accountant or a bookkeeper, and it can feel like an alien landscape.

A business owner once told me how he’d had the best month of sales in years. He said that 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 wide.

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 when you get paid for that sale.

If you don’t pay attention to your cash flow, you won’t stay in business. You’ll have problems paying your suppliers and you’ll find yourself digging into your personal savings or borrowing just to stay afloat.

With that said, here are 5 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 would take out loans from her own savings account and repay 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 dipping into your business funds for something that’s personal, or vice versa.

Many banks won’t be comfortable lending you money unless you have a separate business account.

And lastly, separating the two accounts can be a liability and help protect your assets in the case of any legal actions.

How do you separate the money?

• Have separate bank accounts 

To truly differentiate business money and personal money, you’ll need separate accounts. Know where your business money goes in and out from. This will help you to get organised in tracking profitability, reconciling your books, and monitoring spending.

• Separate your receipts

If you’re trying to reconcile each and every shilling spent on both the business and your personal finances, separate your receipts.

This will help you account for each of the overheads spent 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 every time 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 in case 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 set you back with late fees or added interest, lower your business credit, and sour lender and vendor relationships.

Here are two ways to do so:

• Set Reminders

If you’re anything like me, then it may be really 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 that, where possible, have regular standing orders such that 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 make sure you stay on top of things when it comes to paying off your bills for the business.

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 useful for two reasons:

• 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 to foresee your savings in a given period and start actively planning towards it.

• 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. 

If you find that your revenue is lower than budgeted, you have the opportunity to 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’s dream is to make more money.

And there’s only one way to do that – cut costs and increase your revenue.

• Cut Costs

To cut down the costs, you have to 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 actually 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 one by one.

It’s an awful lot of work, but a great way to track your expenditure. You can then do an analysis and see where you could cut down by a margin.

• Increase Your Revenue

To increase your revenue, you may want to get more aggressive on your marketing. Click here to read about affordable marketing strategies.

You can also choose to offer discounts, add new products to sell, and develop referral strategies.

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. And while these can be really useful, and I am happy that we pay tax, we’d all want to pay less and save more, and not pay tax that you’re not liable for. 

There are so many legal ways to do this as a business owner:

• Meet all your Tax Deadlines

Firstly, by simply meeting all your tax deadlines. You can also claim research and development tax relief, or work from home allowance.

You can claim relief for a lot of things – subscription and training costs, business mileage, pension contributions, and capital allowances on property.

• Get Expert Advice

I’m not an expert, and I can’t give you expert advice.

What I can advice 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 or friend’s friend’s tax strategy may be good for them and not be 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 how to increase profitability and scale 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 a lot of the issues we often face and are in a better suited position to give you impartial advice.

You can never exhaust your knowledge when it comes to money matters, and it’s important that you seek advice from the right people lest you land 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 are looking 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 6 money management tips are:

1. Separate business money from personal money
2. Stay on top of deadlines
3. Create a budget
4. Cut costs and increase revenue
5. Develop some tax-saving strategies
6. Consult finance professionals

My question for you this week is: Do you know what your cash gap is?

If you could do with 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.

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