Finding the pot of gold is easier attained in a business. After setting a successful product or service, you now get a steady stream of income from your customers. Money is flowing in like crazy!
Is it time to live the dream and spend everything? If this is your first wave of sales, the answer is a staggering NO.
Many budding entrepreneurs think that they deserve to splurge their money on the onset. Well, it may be partially true. But you need to control your finances to sustain and grow your wealth.
If you have no idea what to do, here are 6 money management tips for small business owners.
Stay Liquid: Make Frugality Your Habit
First things first, you should not spend everything that you've earned. If you haven't already, you should have an emergency fund both for your personal expenses and business expenses.
I'm not saying you live like a pauper and scrimp over leftovers. Set a budget and realistically incorporate your needs, savings, and emergency funds (The average emergency fund recommended is at 3 - 6 months.). Afterward, check out if you have enough for you Doodads.
And this goes the same way in your business. Check your financial statements. List down the expenses you incur and save reasonably enough money just in case your biggest client backs out or an emergency happens.
You should be frugal on most of the things. And have just a couple of extravagant stuff as long as it is planned in your budget.
This liquidity will bring you the peace of mind and clarity to make better decisions both in your personal and business lives.
Invest in Introductory Classes to Accounting
Even if you trust your accountant or bookkeeper, you shouldn't blindly believe them without understanding the numbers. As a business owner, you should know how to read financial statements because this is your lifeblood.
You don't need to be a CPA to get a grasp for it. Invest in introductory classes to accounting, especially focus on how to read cash flow statements.
The more you understand this, the more you can make crucial changes (if any) to improve your business further.
Be Responsible: Pay Your Bills on Time
Sometimes, we might forego monthly payments because of our work schedules. It can lead to hefty charges as much depending on the bill or the credit card just because "you forgot".
It's like throwing your money due to laziness in planning. It's time to be responsible and pay your bills on time. The late fees you incur might spell profiting (or losing) at the end of the calendar year.
Plan Major Expenses in Advance: Do Not Take Too Much Debt
You might incur debt when funding your business. Using other people's money legally can start or grow your venture faster than using solely your own money.
But do not bite more than you can chew. Be cautious of your borrowing. Businesses fail because they are incapable of paying their obligations to their debtors.
Make sure that you check the payment terms if you can logically pay it based on your realistic projections or current cash buffer. You might even want to consider a line of credit as they are generally cheaper and readily available.
But for what it's worth, if you will have debt for whatever reason, make sure that you planned for it, and that you will be able to pay.
Keep Your Personal and Business Finances Separately
Going back to your budget, you should separate your personal and business finances. Take them as different entities altogether.
You don't want to incur risky debts with your family's savings or assets just to fund your business unless absolutely necessary.
The reason is: you want your personal life to be secured financially. If you mix the two just because, you might have unnecessary pressure for your self and family. Again, better separate them.
You Are Not Alone: Ask Experts
Lastly, we will surely overlook something in our financial lives. No need to wallow in sadness alone. In fact, you are not alone in this.
There are other experts to help you fix (or prevent) these problems. In business, you can start by finding your trusty lawyers and accountants. They are your two most important best friends. These people can help you get out of a sticky situation when worse comes to worst. To learn more about payment solutions for freelancers
With that, I hope you are one step closer to managing your finances well. There are numerous money management tips not listed here. What are your personal tips for us? Let us know in the comments below.