Whether you are a first-time business owner or a seasoned veteran, you know money management is the golden key to success.
Managing money can be an ongoing issue when operating a small business. One of the many details endlessly on the mind of a busy business owner is making sure they are not wasting money. Financial strategies are a necessity; a business owner must implement sound strategies to manage their operating expenses. There is a fine line between knowing and doing something about a problem you are facing. Many business owners acknowledge that they can cut expenses but choose not to take action. As a result of this, their financial problems either reoccur or worsen. Business owners have to stop watching and start taking action on fixing their financial problems.
Finding ways to reduce expenses is a good place to start. When purchasing items such as new equipment or vehicles for a company, it is always a good option to consider buying used or even opting to lease. For instance, business equipment is forever changing. Take into consideration that technology is outdated within a couple of years of purchasing it. Keeping pace with technology is a challenge at best. Purchasing business equipment, such as new computers, could have a lasting financial impact. Think about leasing your computers. One benefit of leasing is the ability to trade them in for newer technology without a large investment. If a company chooses to purchase new computers, they are stuck with them and within a couple of years, their machines are outdated, leaving little or no value. A company vehicle is something that would be best to purchase. Why? Because they can be depreciated on your company taxes and they can offer a higher return on investment after they have been paid for. Reducing unnecessary expenses is required for a good money management strategy.
Budget or bust
It is extremely tough to manage money in a business without a budget. In order to manage money correctly, one must estimate and match their expenses to their revenue. This is important because it helps small business owners determine whether they have enough money to fund operations. If the company does not have enough funds, they will have a tough time growing because it will be harder for them to generate income. If a business chooses not to have a budget, they run the risk of spending more money than they are bringing in. If a company already has a budget and is still generating issues, then there may be adjustments that are needed. Within the budget, make sure that every major department of the business is being allocated. Budgeting is an easy but essential process that business owners use to forecast current and future revenue to expenses. The main goal to having a budget is to make sure that there is enough money available to keep the business up and running. This will eventually help grow the business.
Cash flow vs. profit
In business, sometimes there’s plenty of cash on hand, and other times there’s not. Cash flow can either make or break a business. A business can be profitable but it can still go under due to cash flow problems. Prioritizing cash flow over profit will better help manage money within a business. By closely monitoring and forecasting cash flow it ensures that a company will have enough funds to keep the business afloat. If a business is suffering from cash flow, there are ways to make up the difference until you correct the balance.
Here’s how one full-service company increased cash flow:
An owner of a fitness training business typically offered single sessions where clients pay as they go. Instead, he bundled lessons into a 9-session package. His clients received a discount for booking multiple sessions in advance while his business cash flow increased dramatically. This strategy turned out to be a great short-term plan for when cash flow is low. When his cash flow reached full health, he was able to go back to offering single sessions.
Having the freedom to run a business is what makes our country so great. However, there are challenges that come along with it. To successfully run a small business, there must always be a money management strategy in place. Reducing expenses, maintaining a budget and monitoring cash flow are all essential parts of running a successful business.