When you run a small company, business money management can be tricky, and we have some tips to help you navigate it.
Money tends not to be the reason we go into business for ourselves – unless we’re an accountant or a bookkeeper – and money management can feel like an alien landscape.
A business owner once told me he’d had the best month of sales in years. He was over the moon until he logged into his bank account and realised what the increased sales meant.
He was skint …
It all looked good on paper and in theory. The business owner 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. He’d let long-standing customers pay late and on terms that might have been acceptable in the past, but he should have revised that as the business grew.
The cash flow gap was just too wide.
A 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.
You will only stay in business if you pay attention to your cash flow.
Ignoring cash flow causes problems paying suppliers – you’ll find yourself digging into personal savings or borrowing to stay afloat.
With that said, here are six business money management tips:
Business Money Management Tip 1 – Separate Business Money from Personal Money
You are not your business.
Treat a business as an entity of its own; business money and personal money should never mix.
I once heard of someone who would take out loans from her savings account and repay them with interest. That’s how you should treat your business – like a completely separate entity.
When you mix the two, you end up overspending and having disorganised records – which becomes a problem.
Moreover, it makes it hard to track where exactly your money is going. You might dip into your business funds for something personal or vice versa.
Many banks won’t be comfortable lending money unless you have a separate business account.
And lastly, separating the two accounts can help protect your assets in the case of any legal actions.
How To Separate Business Money from Personal 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.
Separation helps you to track profitability, reconcile your books, and monitor spending.
Separate Receipts
Separate your receipts to make it easier to reconcile every shilling spent on the business and your personal finances.
Differentiating receipts will help you account for the overheads spent in your business so that you can plan accordingly.
Pay Yourself a Salary
Paying yourself a salary is crucial.
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.
Proper pay helps you resist the urge to live off business finances if you need to spend on something.
Business Money Management Tip 2 – 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?
Once you pay all of them, you’re left with almost nothing.
An empty bank account happens when bills aren’t paid on time. They pile up and then dent your pockets all at once.
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 stay on top of your deadlines:
Set Reminders
If you’re anything like me, then it may be easy for things to slip 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 or computer. Or even add sticky notes to your fridge.
That way, you’ll get onto a consistent payment schedule.
Consider Standing Orders
The alternative is to have standing orders 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.
Standing orders 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. Business Money Management Tip 3 – 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 goes – to the last penny – you can land in a lot of trouble.
A budget 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.
When you find that revenue is lower than budgeted, you have the opportunity to find ways to cut expenses and increase income.
Without a budget, everything remains abstract, and you can easily be hit with unexpected shocks.
Why a Money Management Budget is Useful
Plan for the Future
A business budget gives you a financial forecast of the future, so it’s easier to make plans.
For example, if there’s a major project you’ve been meaning to undertake, knowing your budget helps you foresee your savings in a given period. You can actively plan towards it.
Set Money Goals
Money goals help you to monitor growth and brainstorm ways to increase that growth.
It’s crucial to review this regularly and ensure you stay on track. Financial reviews should be a feature in the diary, so it becomes routine.
4. Business Money Management Tip 4 – 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.
There’s only one way to do that – cut costs and increase your revenue.
Cut Costs
To cut costs, you need 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 a great way to track expenditure. You can then analyse and see where you could cut down by a margin.
Increase Revenue
To increase revenue, you may want to get more aggressive in your marketing. Click here to read about affordable marketing strategies.
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. Business Money Management Tip 5 – Develop Tax-Saving Strategies
We spend a lot of money on taxes.
While these are useful in their way, and I’m happy we pay tax, we’d all want to pay less and save more, and not pay tax that we’re not liable for.
There are many legal ways to do this as a business owner:
Tax Relief
You can claim relief for many things – subscription and training costs, business mileage, pension contributions, and capital allowances on property.
Claim research and development tax relief or work-from-home allowance.
Get Expert Money Management Advice
I’m not an expert and can’t give you expert advice.
What I do advise is that you invest in personal advice from a tax expert.
A Certified Public Accountant can help you with tax preparations, audits, and general accounting.
Every business owner has a unique situation.
The tax strategy of a neighbour or friend might be great for them but horrible for you.
Using a bank account such as Starling or Monzo enables you to move regular amounts of money into a separate ‘pot’ for your tax bill or other savings.
When the tax bill arrives, it’s less of a shock to the bank balance.
6. Business Money Management Tip 6 – Consult Finance Professionals
Don’t shy away from consultations with finance gurus. Learn how to increase profitability and scale up your business.
It may be an investment, but it will make you much more money in the long run.
More often than not, these finance gurus have experienced a lot of the issues we face as business owners. They are in a position to give you impartial advice.
You can never exhaust your knowledge when it comes to business money matters, and you must 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.
Here’s how to go about consulting finance professionals:
Determine the Type of Finance Professional You Need
As a business owner, there are so many finance professionals that you may find helpful. Start by determining the gap in your business that needs professional advice.
You might need:
- A financial advisor – For overall financial planning and perhaps investment advice.
- Bookkeeper – To advise you on how to keep track of your daily expenditure and ensure compliance with applicable standards.
- A financial analyst – To gather your data and organise it in a logical way, and then assess risks and predict future outcomes
Identify and Evaluate Professionals
Once you have determined the type of help and advice you need, it’s time to research professionals. Look for recommendations from your network or online directories. Be sure to check out the client reviews online.
You can then set up initial consultations to discuss your business, its financial status, and potential goals.
Find out about their experience and qualifications. Assess your compatibility. Do you feel comfortable with them?
Remember that a good working relationship is key to a successful collaboration.
Business Money Management Tips – Our Summary
In conclusion, if you want to increase your revenue, start with healthy business 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, our six money management tips are:
- 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 is: Do you know what your cash gap is?
Need some support in growing your business? Get in touch. We’re on a mission to help people and businesses grow.
What are your top money management tips? Leave a comment below.
Onwards and Upwards, my friend.
X P
