Many people aspire to become entrepreneurs. Naturally, they want to enjoy the autonomy of being their boss and running a company, but is operating a small business this straightforward? Of course, not. An entrepreneur must wear different hats, from payroll management, marketing, and production to finances. Out of all, managing money seems to be the most demanding task.
You might be an incredible chef who opened a restaurant or a contractor starting a construction firm; finances will always be a challenge. In addition to balancing and maintaining the books, you have to raise capital, find investors, and prepare budgets. Similarly, entrepreneurs have to work on their credit score, maintain an adequate balance in the reserve account, and explore investment opportunities.
For starters, find ways to finance the business. Perhaps, look for venture capitalists or angel investors. Likewise, monitor your spending patterns to watch outflows and inflows. You might not be an expert at this, but a few tips and tricks can always come in handy.
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Here are six money management tips for small businesses.
- Explore Financing Options
Every business has two financing options – equity and debt financing. Entrepreneurs selling their shares to raise capital have to give away a small percentage of their ownership. However, it weakens their position in the company as new stakeholders enter the business. Debt financing is another option where businesses seek loans from financial institutes, followed by a stringent procedure.
Fortunately, FinTech companies and alternative lenders have made it easy to get financing. They have a 7-15-minute-long application and offer same-day approvals. Hence, if you want access to quick funding, start searching within your region. Perhaps, search with keywords like “quick and easy loans NZ” if running a business in New Zealand. Whether you want money to pay bills or buy machinery, these loans cover every business requirement.
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- Invest in Growth
Most entrepreneurs have a profit-oriented mindset. They believe in maximizing profitability and paying themselves. But what is more crucial is that you explore and invest in growth opportunities. It would allow your company to thrive and move in a healthy financial direction.
However, that doesn’t mean you have to set up another venture or acquire a company; instead, start with baby steps. Perhaps, you can invest in another business by buying a few shares. Likewise, you can purchase financial securities such as T-Bills, Bonds, Certificate of Deposits, etc. The returns these investments generate would act as your company’s additional income. You can use that money to enhance customer experience or business expansion.
- Maintain a Good Credit Score
Most young entrepreneurs rely on credit. They purchase inventory on credit and offer flexible credit terms to customers but is that the right approach? It might be lucrative, but it affects the business credit scores. And with a bad credit score, getting approval for loans becomes impossible. After all, every financial institute evaluates a company’s financial health based on the credit score. Thus, the better the credit score, the easier it becomes to borrow money.
So, how do you improve your credit score? First, never delay your debt payments. If your loan installments are due by the 2nd of every month, avoid delaying it further. Second, don’t let your credit cards run a balance for more than three weeks. Third, you have to clear the bills timely and avoid utilizing more than 30% credit. These few things reflect positively on your profile, leading to a better credit score.
- Draft a Billing Strategy
Believe it or not, every business has a client who is always late with payments. Unpaid invoices lead to massive cash flow problems since the company doesn’t have enough money to pay daily bills. It can be tricky to deal with such customers, considering you have to maintain a relationship. Still, you can always get creative with the billing strategy.
Try a different approach instead of badgering your chronic late-paying customer with phone calls and emails. Maybe, you can offer a new payment term such as ‘2/10 Net 30’. This means every customer paying within ten days of the purchase will receive a 2% discount on the total bill. If not, they have to pay the full payment in 30 days. Besides enticing clients to pay timely, it will settle your cash flows, eliminating liquidity problems.
- Monitor Spending & Cut Costs
Do you know how much money goes out of the business every month or week? Truthfully, entrepreneurs aren’t fond of maintaining books and keeping records. But if you don’t monitor the spending patterns, you will rack up extra bills. Also, it can lead to misuse of funds.
Therefore, make a habit of monitoring the spending patterns. For that, you can connect your bank accounts to an expense tracker. It will monitor how much money you withdraw and for what purposes. Moreover, don’t forget to factor in the uncashed checks. At times, the recipient doesn’t cash the cheque right away, and entrepreneurs end up with an overdrawn account. Having a check-in balance of spending will also help you cut back on unnecessary expenses.
- Maintain a Cash Reserve
Another part of money management is having an emergency account, a cash reserve. Even though business owners plan for every expense, some things arise out of the blue. Maybe, machinery breaks down, or an employee gets injured on the premises. Keeping a small cash reserve will help you fund all such expenses while ensuring profits remain unimpacted. If you deal in crypto, you can also manage crypto wallet for your business. You can sell ethereum for cash and use the money for your business.
You have to open a savings account and deposit some money in cash reserve. Perhaps, you can take out 5% of your profits every month and save them in the cash reserves. It will also reduce the dividends payable to shareholders while securing your company’s financial future. Besides this, you can also maintain a general reserves account to fund routine business expenditures.
There is no sure-shot way to manage money. It is more of a skill that entrepreneurs grasp and learn over time. Therefore, the earlier you start learning the ropes, the easier it will become to manage finances. From monitoring expenses to acquiring loans – you have to master the art of financial management. Likewise, understand how cash flow works and find opportunities to scale down costs. These few tricks and tips can significantly boost business profitability.